Doha Bank Q.P.S.C. (DHBK) Earnings Call Transcript & Summary

Good afternoon, everyone. This is Elena Sanchez. And on behalf of EFG Hermes, I would like to welcome you all to Doha Bank's Q1 2024 Earnings Call. It is a pleasure to have with us in the call the following speakers from Doha Bank, Mr. Abdul Rahman Fahad Al Thani, Group Chief Executive Officer; Mr. Sanjay Jain, Acting Chief Financial Officer; Mr. Fawad Ishaq, Chief Treasury and Investment Officer; Mr. Salman Mustafa Siddiqui, Chief Risk Officer; and Mr. Hesham Kalla, Head of Investor Relations. We will start the call with a brief presentation on the results by management, and then we will move on to the Q&A. I would like to hand over the call now to the Group Chief Executive Officer, Mr. Abdul Rahman Fahad Al Thani. Please go ahead.

Good afternoon, everyone. I hope everyone is well. Today, I want to start to introduce my new team who just arrived last quarter. I will start with Dimitrios, who joined as Deputy CEO, and he will the mic to introduce himself, and then I will pass to everyone to introduce themselves in the call first.

Yes. Thank you, Sheikh Abdul Rahman. My name is Dimitrios Kokosioulis. I am the Deputy CEO of the bank and heading Retail Technology Operations and Digital. I joined the bank 2 months ago. My background is international banking. I bring more than 23 years of experience, having worked in Europe, Middle East, North Africa, The States in global and regional institutions like Citi, HSBC. My last role was at the National Bank of Kuwait as a Deputy Chief Executive Officer of the bank in Kuwait. So I would like to introduce [indiscernible].

Yes. So I was actually there at the last call. I had recently joined them. I joined about 4 months ago. I have been looking after the group treasury and investment. Currently, I'm also looking at the international banking group. So looking forward to having a discussion and answering some of your questions on this call.

I think now I'm going to introduce Salman and he will be able to talk because he's in Saudi Arabia for a visit. Salman?

Yes, sure, Good afternoon, everyone. My name is Salman Siddiqui. I'm the Chief Risk Officer for Doha Bank. I've recently joined the bank around 2 months back. My prior experience has been in the region in Saudi Arabia. And before that, I've worked with international banks such as Standard Chartered, Citi. So very happy to be in this call. And we look forward to a very productive session. Thank you.

And also Fadi will introduce himself. Fadi?

Yes. Good afternoon, everyone. My name is Fadi Fattal. I've got 27 years of corporate commercial banking experience with multinationals. I actually just joined less than a month ago with Doha Bank as the acting Chief for Wholesale Banking. Previous positions that I've held were senior roles at HSBC Group, both Qatar and Canada, and previous to that, Citibank Dubai. So 22 years with HSBC Group and previous to that, 6 years with Citigroup. Looking forward to this call.

Thank you. I can start now, Everyone hear me?

Yes, we can hear you. Please go ahead.

After maybe last call, couple of things have been changed in the bank. We promised to update on the call every quarter, what's going on and where we are today. I will start of course of the transformation because this is the main change for us. We feel the progress was great, not expected to be this fast. Everyone accepts this transformation, especially people who have been working here for the last 10, 15 years. And this is a challenge that we faced from day 1. But to be very honest, we finalized the assessment. We know where is our issue, where is the problems from day 1. And within the first 8 weeks, we find out everything. We explained this first to our regulator and our Board. We showed them the problems and the issues. Today that we are going to move, and we put a direction for ourselves where we need to be in the market and how to do the change. Nothing would be changed within one day. So we believe that the change is going to be taking more time. But as well, we limit ourselves. We do the pressure internally. I think everyone was working. I will not say they are sleeping in the past, but the truth they're working until night to ensure that we deliver on time, and this is something that I need to clarify. I will start as well, with the transformation, a couple of things was there. We put our strategy. It was approved by Central Bank, by the Board and by ourselves. We believe this is the future. So let's now move on the main important point that I want to say this was like on the retail, on the business side. I will start with the retail. Retail, we reduced a couple of our branches from 22 to 16 today, which is a great move. And I think we are going to do more. And we try to have more payroll from the government entities, which will add value for our future. This agreement has been settled with a couple of the key companies. Now I'm going to move to the international part, which is the branches. I think Dubai -- I will start with Emirates. Abu Dhabi and Dubai. We managed this branch of course over the last 6 months. We success with it. [indiscernible] we start to initiate with these countries. We closed couple of them and under process because we need the approval also from the other countries. So we're reducing the offices from 16 to 11 and 10. And we will go more down as well. The business here internally in corporate, total asset growth has been good. The double-digit growth maintained. The LDR, we reduced it. And it's not because of regulation as well. This is part of our agenda, and it's going to be like for the bank regulation as well. I think I covered maybe the most of the point, but maybe couple of things that we need to know. The cost income -- I mean, the branches -- I don't know where to start, but I have a lot of things to talk about. I think that the team also will help me with a couple of points. We'll start with Dimitrios or Dr. Fawad to also go more deep on each sector what they did or how they helped Doha Bank.

Sure. Just to add to what Sheikh was saying in terms of the transformation and some of the things in quarter 1 that we had spoken to you about and now that we have delivered on, I think starting with the EMTN program. We were successfully able to launch a $500 million 5-year bond. We had investor call. We did the road show, a very successful one. We had 2 billion of order book. We were able to issue it at one of the [ tighter specs ] that Doha has seen. And that is basically a confirmation of the confidence that investors have in terms of our transformation and the plans and it's forward-looking. We are planning to keep a live EMTN. Every year, we'll be doing the issuance. We'll be doing road shows. Along with that, we are looking to go to [indiscernible]. So a lot of things are changing on that side. On the ratio side, you have seen the change from quarter 4 to quarter 1. You looked at the LDR ratio, the LCR ratio, all of them have shown significant improvement, and we had highlighted that to you guys in the last call. From a perspective of cost of funds as well, we have managed to do long-term repo to maturities, which are 5- to 7-year funding, which is at the cheapest sort of curve in terms of the funding cost for us. So we're replacing high-cost deposits. I think you will start to see the impact. Quarter 1 might not be reflective of that change, but there is significant now focus on making sure that we are liquid, but we're not paying up for the cost of liquidity to be able to fund our asset base. On the investment side, significant amount as we had agreed and sort of indicated to you guys. The portfolio now stands at around north of $9 billion equivalent. It is income generative. We approved some of the large maturities that were new with local bonds, now with replacing them with the high-yield ones. And we keep on replacing that as more securities become available. And you're seeing that in the interest income increase this quarter in the securities portfolio. These are some of the highlights. We're happy to go into detail and answer any of your questions.

Before I pass to Dimitrios, I'm kind of again talking. A couple of things I didn't mention also was important to deliver it for you guys that because of the sectors that -- it's very important for us and that's something very important with the transformation that we take it as a priority, the remedial sector. We know it's a problem that -- from this accounts that we need to solve it. And I think that the Board approved for me last quarter to issue this remedial sector that becoming reporting to me directly. That's because it's very important for us. We put an acting right now. It remained a couple of people. There is a strategy on this. I will go around on deep on it. This is very important. And we start to solve a couple of accounts, which is also important. Here, again, I would like to thank to Fawad and the team as well because it was great and the pricing was very good comparing with other local banks this period and it's a success. Very important part of the transformation was digital. To be very honest that the timing is like killing us and we want to ensure that we're doing the right and correct things. Digital, one of the things that's important for our future. I think Dimitrios will go deep on it, but the mobile app that we will be announced very soon next 2 weeks, there is a big announcement for our mobile, the app. And it's one of the best in the market because the team have been selective over here. They've been working on the whole market. They have good experience. And we ensure doing the test last 3 months and it's workable and it's going to be -- will be one of the most advanced app in the market. Regarding the business, 2 things I want to maybe highlight here, but it's important also to include that I passed this message. As you aware about that the Doha Bank, previously, they don't have the private banking. Today, we ensure that to hire a couple of qualified people, who is working in the market, they have good background with a good client bases. So they are going to join us. Also implementation to hire this quality people start within 1 day or 2 days, it's going to take time. But I'm pretty sure that it's a success story. And we start on this public section. A lot of you guys will ask me how -- my background was -- I'm working on the public sector. And also my focus for the future of Doha Bank to be very close with the public sector. I'm shocked that a couple of news today in the market, bigger ones, were talking about more than 8 or 10 clients with a huge cost of lending. And this is very important for our future to select our partner. Today, I'm the one who selects -- who I'm going to give -- trying to find -- there is, in our table today, more than 8, and we are discussing this with Fadi and the treasury as well to ensure that this is not going to be very cheap lending. It's going to be also making the margin for the bank and will add the value of the entities. So this is where -- briefly I say as a business where I'm focusing for the future of Doha Bank. And now I'll pass it again to Dimitrios.

Hello again. If we focus on the transformation journey that our group CEO has just outlined, the transformation is all about also behavioral changes. So the bank is actually focusing on making sure that all people are fully aligned and understand what is the purpose of the transformation. In retail banking, we have actually looked at the way we operate to reduce branches, to become more digital. And retail is all about innovation technology. So we are focusing on investing on technology. The core banking system is going to be a key strategic pillar of our expansion and actually of our new strategy. We have 2 core banking systems. We want to go with one and make sure that we will be able to start, first of all, with international operations, and then we implement also during next year in our main country, which is in [indiscernible], which is Qatar. So it's going to be a state-of-the-art system and will give us many capabilities. We will be able to digitize processes, which is a very important step in order to also make the whole customer journey more seamless and make sure that we reduce turnaround times and fast efficiencies. So branches are becoming more customer focus, customer experience, data analytics. These are 3 key critical things we are focusing. So also the technology stack, we are reviewing various other systems. This is a golden opportunity for us -- with the core banking system to digitize processes. And this can help us also become more efficient to take out actually bespoke systems that the bank has for various -- for several years. And of course, on the cost side, this will allow us to make sure that we reduce cost. We'll become more efficient through -- as we said before, through rationalization of our international presence, rationalization of branches. We cannot go down to 1 or 2 branches because it's a market. It's structured that way that people want to deal with good people -- good staff. So we envision to actually be reducing this number of branches even further. As we said, the mobile banking first is our key priority, focusing on Qataris, having all our services on mobile banking. And as it was mentioned by our group CEO, in a few weeks, we will be launching a new version of our mobile banking application that will be having a facelift, user-friendly, seamless experience, adding new features, peer-to-peer payments, different -- actually limits for increasing and making sure that we -- our clients can perform payments and transfers and opening sub accounts, et cetera. And also we are working for the future to have a super app and to be actually the first bank to have a super app and be the best application in the market. Now with digitize processes, and this will also -- will help us also utilize new technologies, AI, machine learning, robotics, process automation. But at the same time, will allow us also to review calls. We are negotiating with [indiscernible] rentals. And also, we are negotiating operating experience lines with various vendors. But also we're going to -- we are structuring our teams, making sure that we come up with more lean and efficient structure, reducing extra layers, et cetera. So this is a big cost optimization exercise that is taking place. And then during also through our digital transformation and digital journey, we're going to provide the special focus on our customers. As I said, Qatari is also the key target that we're going to target in the market for retail, and we are looking forward to the journey.

I think maybe Fadi or Salman, if they want to continue with the talk.

Yes, I can start. Thank you, Sheikh, and thank you, everyone. So basically, on the wholesale banking front, what we're looking at doing in terms of KPIs as we're looking at growing the portfolio, diversifying away from real estate, basically prioritizing the diversification into sectors that are not prone to the real estate market such as the trading sector, the energy sector, the public sector, green. So that's 1 point. Another KPI that we're looking at is a transformation of the wholesale banking structure. We also want to -- or we acknowledge the fact that digitization is the way forward. And we're also beefing up and revamping our entire digital platform, both in terms of our online banking for customers as well as to follow that would be the digital application on -- our mobile application. We're also looking at transforming and upgrading our internal core lending systems at the bank. Obviously, cross-selling is a key priority for the bank to build up our, NFI, non-funds income. And predominantly, all will be centered around pipeline and making sure that we're out there in the market winning -- as we should be winning.

Okay. Salman, if you want to add anything as well.

Yes. Hi, again, Salman Siddiqui. So on the risk side, we are looking at our overall portfolio. We see the bank has been very consistent on rationalizing the portfolio in terms of where we need to build our provisions. It is very much evident through our numbers across the last 2 to 3 years. Very consistent stream of provisions has been built so that we know where we're heading on accounts that show a significant increase in credit risk. We're also working very closely with our business teams to support the long-term strategy and the medium-term strategy on the bank on the asset buildup. We're targeting with our business teams sectors where we see there's still potential of growth, while we're being cautious about the sectors where we see the pressure is still persistent. On account of our Stage 2, Stage 3 portfolios, you would have seen that the bank has maintained a very decent amount of coverages. And we'll continue to build our coverage ratios in terms of both Stage 2 and Stage 3 accounts. So on top of that -- at the back of that, we are also looking at how we can -- looking at Stage 2, how we can help our customers on a case-by-case basis to actually be cured or could be remediated on a timely basis. So that we do not see any unwarranted migration from Stage 2 to 3. But that is being done on a case-to-case basis. Also at the back of the Central Bank's circular that has come out in terms of particularly the real estate and hospitality sectors and construction sector where we see the industry was undergoing some sort of pressure. So we've used that opportunity, and we are looking at each customer in the portfolio so that we can see how we are placed and how we can continue maintaining the stability in the portfolio going forward in the year 2024.

Thank you, Salman. You want to go ahead, Sanjay, and give...

Sure. I think most of things has been said by our CEO and the business group. I just read out some numbers on the key metrics number on the financials, and then we can go to the question and answer. On the balance sheet side, our total assets increased by 5.9%, year-on-year. And our loans and advances grew by 2.7% year-on-year. And our guidance for the year, growth of the loans and advances is 5%. And our customer deposit grew by 7.5%. That led to our LDR ratio, which is mentioned by Sheikh and Dr. Fawad stood at 95.4% LDR ratio at the year. And the guidance for the year is that will be around 100%, maintaining LDR ratio 200%. Our NPL stood at 7.6%. And the guidance, we maintained the guidance which we gave at the year-end, circa 7%. However, we will be -- keep on updating as well as the new progress in the quarter. Our core equities is good, strong, 13.34%. And total CAR stand at 19.74%, total CAR. And the guidance for the year-end is around circa 19%. On the P&L side, we have achieved a profit of QAR 231 million, which is 10.9% growth year-on-year for the same period last year. And our net operating income increased by 4%. Our cost increased by 5.1% year-on-year. Our cost-to-income ratio stood at 35.5%. And the guidance for the year and that will be maintained below or bring it below -- our cost-to-income ratio below 30% -- 35%, sorry. Our loan loss impairment, you are seeing, it has improved to QAR 179 million versus last year QAR 204 million, which is a decline of 12%. And the cost of risk is 123 basis points and the guidance for the year we are giving is 150 basis points. And our specific provision coverage improved to 62% coming from year-end -- 59.2% at the year-end. And our NIM as of Q1 '24 is 1.97%, and the guidance for the year we are giving is 200 to 210 basis points. I think that summarizes the financials. If you have any question, we have our team along with me to answer any of your questions. Thank you.

Thank you very much for the presentation. We will move now to the Q&A. I see we have a few questions already lined up. We'll take the first question from Lee Beswick.

Can you hear me?

Yes, we can hear you. Please go ahead.

Okay. Could you -- just a couple of questions, if you don't mind. Sorry, I think you just said cost of risk will be about 150 bps for the end of the year. Is that correct?

150 basis points.

Okay, okay. Excellent. Secondly, just on your provision coverage. The Stage 3 coverage, sorry, has deteriorated a little bit essentially just -- because the NPL ratio went up. When do you think that NPL ratio will peak?

See, as we said -- Sheikh said in the last call in Q3, Q4 call that, yes, we're cautious of the fact of our NPL ratio and then that will tick up, which ticked up at the year end. And he mentioned very categorically in his brief that he has created a remedial department, which is reporting directly to him. And that will take care of -- and Salman also touched upon on this thing, that we are working very closely. I would say -- I would ask CEO to just jump in.

Yes. This remedial, this period, we are aligned with our new chief of the first batch together to build the internal strategy, to build the right team. It's not immediately will start. But yes, there is a strategy that we will start immediately on that. It's not something that's going to be next quarter or the last quarter. Today, we are -- as I said, 3 different accounts has been solved, and we will continue to solve this big accounts which will really directly impact from the bank as well the write-off. I say, the good things that will come it as well, part of the things on the strategy. To continue to finalize this team, it's going to take time. But as well this NPL ratio is not only with -- Doha Bank had, but we have considered it's very important to solve it. Other locals don't have the same or more or worse as well. But we are working and we understand that -- how to solve it. We put the solution and we're part of it. And with the Central Bank as well, they are aligned with us. It's a full strategy from the bank and the management of the bank and the Central Bank. So we have aligned together to ensure that we solve this issues. We have time, we have period that this is not going to be solved within 1 quarter or 2 quarters. It's going to take 2 to 3 years, but for sure, this will be solved.

Okay. I suppose the issue...

I'm sorry, in addition to what the Sheikh and my colleague, Sanjay, also mentioned. I think we've taken a very strategic view of these things. We are going in a very stepwise manner. The Sheikh already mentioned that there is a very dedicated function now, which is called the corporate remediation unit. That is going to very -- have a very focused approach on these accounts. In addition to that, I already mentioned in my earlier comments about selective restructuring that we are going for in line with the guidelines issued by QCB and in consultation with QCB. The other thing that we're very actively activated and are very focused on is the only one in mechanism that the bank is using now, where we're seeing -- very closely monitoring the portfolios. We are closely monitoring the sectors for any early warning signs that they may demonstrate so that we can initiate remedial steps rather than looking at it in a post track manner. The third step that the bank is taking, which is a business as usual, asset growth as well. So our asset growth, as was earlier said, is focused towards sectors which offer a steady risk-reward stream, a balanced equation of risk rewards, so that, that asset growth also sort of rationalizes the NPL ratio. Last but not the least, it's the coverage that you refer to will continue to get rationalized as the asset book also grows and the NPL number gets to rationalize. You will see the coverage ratio will continue to improve, as you have witnessed over the last few quarters. Thank you.

Okay. Sorry, it didn't improve last quarter. It got worse, that's my question. Because your NPL is ticking up slightly. Your cost of risk will sort of be in line with last year. And maybe you do get some asset growth, I don't know where from, so we see a demand for it. But maybe you do get some asset growth. So the question is how much of the coverage, which is already extremely low, how much will it get lower? I suppose that's one...

Lee, can you rephrase that question exactly what you're looking for?

Yes, sorry, sorry. The provision coverage was -- the provision coverage is 62% in Stage 3. So can we expect that 62% will not go any lower?

Yes. I mean if you look at -- I said that what we expect our coverage ratio by the year end is between 61% to 65%. And Salman also said that we are going to continue to improve our coverage ratio. So what happens is -- I mean, though we are taking provisions and why we are taking 150 basis points as a cost of risk, because of the -- we have a low coverage issue, right? So -- and why we're keeping the same guidance for, as last year, we had about 50 basis points, just to bring our coverage up, right? But what happened in the process by the year-end, so it's a fact of 3, 4 things which happens like NPL formation happens, the write-offs happens. And that changes your coverage ratio. And then how much, as Salman mentioned, it depends on how is your loan growth happens. So NPL formation, write-offs, that all -- there are 3, 4 factors joined together. There are 3 for variables, which tells you how the coverage is going to be. And that's the reason we are giving you a range of 61% to 65% this year.

We'll take a question now from Chiro Ghosh.

I guess, first, thanks for introducing new management, nice knowing them. So just two quick questions. I just missed a couple of points because there were some disturbance in the line. So first one is, did you say that you plan to lower your loan-to-deposit ratio to close to 100%? Did you say that, Mr. Sanjay.

Yes. So we are at below 100%. So we want to be compliant. We'll stay close to 100% or slightly below. We are already compliant. So we have moved down significantly, and that was part of the promise that we made that we will make sure that on regulatory ratios, we are compliant. So a lot of work has been done on that. And we have a projected funding plan where all the impacts and projections of every deposit and funding element, and the impact of ratio is calculated, monitored and we track it. So we're going to keep our LDR at sub-100%, and we're going to keep it close to 100%.

Yes, it has improved from last year Q3 117% to 104% at the year-end. Now we are 94%, 94.5% approximately, which is as per the QCB guidelines. So that's what we're saying. We'll take it up to around or below 100%.

Okay. The second one is I think I missed the point. You were saying that the Central Bank has guided -- related something to the real estate construction and hospitality sector. Can you just please...

[indiscernible] again talking, I said that the Central Bank was asking Doha Bank to do the full transformation. They are allowing us. So we proposed things to them. They approved this transformation for the whole bank. As well the second part that I was mentioned, that the NPL, we will ensure that we are allowing Central Bank. They didn't say that they will solve real estate -- not real estate -- it's about everything. They are aware about the NPL issue and how to solve it. We are aligned with them. That's what I mentioned.

Okay. Perfect. And also, you said that you're in talks with a few of the corporations so that they don't default. So would we see some kind of restructuring in those loans or some extended terms to help them out? .

Yes. It's a factor of both. Isn't it? I mean that's what we are working on. That's what Sheikh mentioned.

I'll be very honest, this quarter, as a full assessment from remedial, they are defaulting. So remedial should look at the case with the risk. And they put their full assessment on it and what is good for the bank, of course, we will do.

We will take the next question now from Aybek Islamov. Aybek? All right. So we seem to have some issues with his mic. In the meantime, I'm going to read a few questions that came on the chat. One of them is whether you have any comments on the performance of commercial office space in Qatar.

Could you repeat the question, please?

They're looking for what the commercial real estate breakdown of the book is between offices and commercial and residential. Yes. They also want to have a bit of clarity on what's happening on the hospitality side. And that's quite easy. We've been disclosing the hospitality, hotels and in the service sector, and they do not fall under real estate limits. So with regards to the rest of the book, if -- Fadi, if you're there.

Yes. So in terms of the book, as Hesham you were saying, the hospitality sector is not considered to be real estate. In terms of the real estate, we are, as I mentioned in my intro, trying to reduce the real estate exposure that we have on the book. Some of it is being restructured. Some of it, we are looking at other solutions. But predominantly, we're trying to minimize growth in the real estate sector.

Thank you for that. We'll take our -- the next question from [ Andy Bradner ]. Okay. We will try again with a question from Aybek Islamov. Aybek?

So a couple of questions, please. Can you explain what's driving the negative revision to the NIM forecast? Is it driven by the asset yields, loan yields? What's happening with the loan pricing, while you negotiate some of these loans, which you're in Stage 2 or maybe even in Stage 3? That's my first question. I think the other interesting point is that the ROE guidance looks like it's the same as before, right, 6%, 6.5%. And why is this the case? Do you expect to see some other levers in your profitability to improve? And can you explain what that could be?

Okay. Let me take the first question in NIM you're asking about. The guidance which we have given is 200 to 210 basis points. If you look at -- see there are 2, 3 things which is happening. If you look at the LDR ratio, which has improved significantly from Q3 at 117% to 104%, now at 94%. At the second or during the first quarter, there are a lot of pipeline deals which was there. And we had healthy LDR ratio, that could materialize. So that -- what has happened that's how the NIM has been under pressure in the Q1. But going forward -- and when we give the guidance earlier for the NIM, we are expecting some Fed rate cut should happen, which we see is going to be deferred. So we are sort of cognizant of the fact that, the effect of that, which is positive for Doha Bank, will come in the next year. We do not expect that benefit to come in next year. So that's the guidance on the NIM. And the second question on the ROE side. I mean, again, there -- a lot of things will depend on demand. There is a factor on the provision on the loan side. That's rest of these parameters, quite stable, which is a consistent sort of thing. So yes, I mean, 6%, 6.5% where we're coming from 5% or so something in the last year. I think that's something which is achievable by the year-end. And again, just to let me -- just clarify one more thing, that the cost service, which we're giving it to you, is based on the number. We are not factoring any significant recovery, though it's in the pipeline. If that recovery comes in, that will add to your profitability, and maybe cost of risk may go a bit of downward and you'll see.

Can I just clarify my first question? I mean, if I look into the last 2 years, the policy rates increased in Qatar by almost 300 to 400 basis points. Whereas if I look at the lending rates or loan yields, they're up only about 200 basis points. Why is this the case?

Yes. I mean, if you look at QMR rate going back to 2022, the spread was 150 basis points, whereas the QMR rate -- deposit rate increased and then the QMR lending rate decreased so the gap of 100 basis point, that's one reason. Second reason is you have seen 6 or 7 rate hike happen. All of the rate hike could not be transferred to the entire portfolio. I mean, theoretically, yes, should be. In practically, no. So that is the reason.

Okay. When you restructure your loans, are you revising your lending rates as well? What's the revision? Is it -- I think in general, right, if we look at your assets, I'm counting almost 60% of your assets are linked to the real estate in one way or another through contractor exposures, through direct real estate exposures, indirect real estate exposures. So, yes, I think what's the cost benefit outcome for you, right? I mean, you might get better outcome on your asset quality, prevent the big spillover of loans into NPLs. But you might be sacrificing on your lending yields. Is that the way to understand it? Like is that a common solution to the commercial real estate overhang in particular?

No. I mean, when it comes to restructuring, it's not only the yield, which you are negotiating. It's the tenure, yield and -- there are 2, 3 factors. I mean, it's just not the 1 thing basically. And it's on a case-to-case basis. We cannot generalize in my opinion. Because in real estate also, there are commercial. There are residential. There are shops. There are hotels. There are sort of like service sectors. So it's difficult to generalize.

Okay. In relation to what my colleague, Sanjay, just mentioned, I think when it comes down to restructuring, we've been conscious of the risk reward equation of the risk that we are taking in terms of restructuring and in terms of the tender extensions that we're giving. While we are doing that, we're very conscious of the pricing that is there. We don't want to end up in situations where we are very thin on pricing, while we accommodating the customer to facilitate their cash flows. So the bank is very cognizant of that. We are looking into each case at its way. It's not that a general or a generic approach has been adopted that okay have to do it, no. Where we see the case that has merits to do so, we'll go for that. But we're not adopting at all a one-size-fits-all approach. That's not the case at all.

Understood. Yes. And as part of the restructuring program that you presented, I believe the Central Bank you mentioned, is the restructuring of costs on the agenda? What are the chances we're going to see sharp cuts to your cost base -- operating cost base as a result of the restructuring plan ahead of us?

No, actually, there are two sides to this question. Costs, since we're going to also invest in new platforms -- automated platforms that we have in our legacy, also the hiring of the senior management team. That's why you see that the costs are high, et cetera. Now in order to take out the pressure from the cost, as I said, we are taking various measures. It is actually negotiating the leases, negotiating contracts with vendors, rationalizing our international footprint, rationalizing the number of branches by digitizing processes, which will enable us to reduce FTEs. And these are things that also we're going to start. So of course, focusing on the cost optimization is a critical component of our strategy. But don't forget that we are also going to invest on -- actually on the key platforms that will take us to the next level, but it's the mandatory actually action we have to take in order to give Doha Bank an edge of our competitors to be able to have a seamless experience in new applications, mobile banking applications, super app, et cetera. So, yes, we are balancing and we're trying actually to reduce and mitigate cost and actually streamline cost. But on the other hand, there's going to be investment, that has to be there in order to be able -- there is a CapEx or OpEx in order to be able to invest in the future. So the main point and the main actually message is that we are focused. Of course, there will be reductions that we will see. But on the other hand, at the same time, we are spending to refresh our stock to be able to invest in new technologies. The regulator has been actually approving and publicizing new regulations in terms of public cloud, in terms of impact or in terms of digital attackers, open banking, blockchain, which is actually the new technologies that we need to be there and capitalize on this that will provide us better customer service experience and also will help us to mitigate and minimize cost. So yes, we are going to -- we are focusing on cost, but there will be a gradual reduction cost. You cannot expect to see a dramatic cost reduction in the next quarter. There will be a reduction in cost going forward. But also at the same time, don't forget, we need to do this investment, which is critical for our future -- for our business going forward.

Okay. And in terms of revenue generation, what assets are you going to rely on in terms of generating revenue? I presume you're an origination-led revenue bank, right? Is it going to be purchases of securities, government bonds? Or is it more about lending? What types of assets you think will drive your revenue growth?

Are you talking about specifically from an investment book perspective?

Entire asset base.

Okay. I can speak about in terms of what we're looking at from an investment book perspective, which is a 30% contribution to the overall bank's top line. We have about $9 billion portfolio equivalent, mostly HQLA. We can grow that book with HQLA assets because it doesn't require capital. And currently, it is generating around 50 to 60 net of cost of funding. So that's a very decent chunk of revenue that we will keep on adding to it. We have increased in terms of the fee-based business, not only on the FX side because we're now covering our clients for the hedging plan in place. So we're looking at the rate commodity, FX across board, making sure wherever we end balance sheet, there is a large amount of ancillary that we can capture from the client. So there is a clear drive into it. And you can see from the FX revenues this quarter, they have a -- they're significantly increased. They're on that trajectory. And then we're adding a couple of other income lines. Sheikh Abdul Rahman mentioned the private bank. We're looking at the wealth management offering and we're looking at asset management offering. And those are scalable businesses. So we are trying to sort of increase the fee-based part, so there is less dependence on the balance sheet. And we have the ability to increase that, not only from that, but to add -- there's a whole strategy around Dubai branch now, which is getting approved, which will be the offshore booking hub for us. So that will allow us to be able to book a lot of the syndications, a lot of the unfunded -- trade funded, unfunded on the trade side, the risk participation side and also increase the offering where locally QCB would not allow you to offer some of the derivative products, and that offering would come from offshore. So that sort of component which will drive about 30%, 40% of the revenue base.

We will take the next question from Essa Buheji.

A question on the coverage. So my question is to Salman. You mentioned that you'll continue provision buildup. So I just want to -- if you can elaborate more, what is the provision allowance shortfall currently when you look at, not only Stage 3, but also some of the accounts that you mentioned, Stage 2 that might be to Stage 3? Like at what level that you feel comfortable? Is that now at 62 coverage to Stage 3? Is that -- should go to 100, 150? Maybe if can elaborate more.

Yes, yes. For sure. So -- sure I can elaborate. So as you just mentioned and my colleague, Sanjay also covered about it, but our current coverage ratio in Stage 3 is around 62%, which is going to hover around the 65%. But that is the anticipated coverage ratio. However, our desire is to continue building this ratio to the higher levels. As and when we see the opportunity, we are more certain to provide more names as a strategy where such names are demonstrating signs of increased risk. We are not trying to push the matters and we recover it. We're not doing that. We are being very transparent in terms of which names of our provisioning at higher levels, we are providing. And we continue to do so. As far as what is a comfortable level, obviously, any level close to 100% and beyond is something that every bank desires. But since we are going to a journey, I would not say that we set a benchmark where that will give -- this percentage will make me feel very comfortable. I would say it is a journey that we are very aware of and we have set our internal targets. Given this 65% benchmark, we will start trying to achieve that rather than to achieve that, okay? So in the back of this, are we planning -- we plan for our strategy, and we'll continue to execute that strategy intended to reach -- with our business range. As I mentioned earlier as well, we are looking at the asset quality as well, okay? The new assets that we're looking are not provision intensive assets in terms of the asset quality, in terms of the [indiscernible]. So it's an entire mechanism that we are looking at. It's not just that we're looking at provision in isolation. We're looking at the entire ecosystem of rate originations to post credit approval management. So we look at it in totality with the bank's vision, so you will see that the bank is very focused.

It appears we don't have further questions at this point, and therefore, we can close the call. I would like to thank the management team of Doha Bank for the presentation and all the answers provided. And I hand over the call now to Mr. Hesham Kalla for any closing remarks.

Yes. Thank you, guys. We just want to appreciate it. And we do see in the Q&A couple of questions, but our group CEO is limited on time, and we've been with you a good amount today. You want to have a closing remarks?

Yes, sure. So again, look, I really appreciate this regular call. This is a very important call for us to keep you posted in terms of the impact of the transformation and the reserves that are being generated in terms of what's being implemented, but also try to give you the best forward guidance we can to manage in terms of how we see the trajectory going forward. As we said, we're really now committed in implementing a large transformation in Doha Bank. You can see some of the green shoots of that already in quarter 1. And we look forward to keeping you posted with all the implementation as in due time. You will start to see the results that are being reported in our quarterly. So thank you, everyone.

Thank you all. Thank you.