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

Good morning, good afternoon, everyone, and thank you for joining us today. This is Janany Vamadeva from Arqaam Capital, and I'm pleased to welcome you to Doha Bank's Fourth Quarter and Full Year 2024 Earnings Webcast. Without further ado, I'll now turn the call over to the Group Deputy CEO, who will share some insights and then we'll go straight to [Technical Difficulty]. Over to you.

Okay. Thank you very much, and good afternoon, and thank you on behalf of Sheikh Abdul Rahman Al Thani, our Group CEO. I would like to thank you for joining us on Doha Bank 2024 Investor Results Call. I'm Dimitrios Kokosioulis, I'm the Deputy CEO and I have with me our CFO, Mr. Aman; our Chief Treasury and Investment Officer, Mr. Fawad; and our Chief Risk Officer, Mr. Salman. And we are going to give you some key highlights of what has happened in 2024. And then I will hand it over to our CFO to share some financial performance highlights for the year. And then we will open it up for the Q&A session. So 2024 was a very key critical pivotal year for our transformation. As you all know, we are going through a big transformation program called Himma Transformation. [Technical Difficulty] the way we operate and the way we do things at Doha Bank. So it involves all processes, business units, times, systems and people. So over the past year, we have achieved a transformative milestones [indiscernible] by innovation, operational efficiency and a commitment for sustainable growth. Now allow me to share some of the highlights of our journey in 2024. [indiscernible] So over the past year, Himma Transformation, as we say, is a full transformation program, and we have actually has 87 initiatives, and we have actually been able to start and kick off 78, which means that 90% of the total transformation program has been kicked off. The total transformation program has close to 173 total deliverables, and we have been able in 2024 to close and complete 108, which is close to 62% completion. So we are well on our way to finalize and complete the transformation. And 2025 is going to be also another critical year for this process. Now in terms of governance and organizational strength, as we have said also last time, we have been -- we have completed critical appointments including all the C-suite. So we have the key leaders, the teams that are going to drive this transformation. Under corporate initiatives, we have been able to establish a corporate remediation unit with a robust database for portfolio oversight, and we have been able to revamp the corporate credit process, reducing expiries backlog. On operational efficiency and savings, we have been able to identify close to QAR 110 million in annualized savings, out of which QAR 90 million have already been captured. We are using these savings in order to be able to reinvest back in the bank in order to -- as part of the transformation process with new systems, et cetera. We have been able to streamline operations and rationalize our network. We have closed and exited 3 nonstrategic representative offices, 2 international branches. And domestically, we have closed 5 branches. So we reduced our network from 21 branches down to 16, 14 -- out of which 14 is conventional, one is a corporate service center and one is corporate office, corporate -- for our corporate clients. And it's a corporate branch. And we have a plan to even further reduce this number of branches we have. And our digital transformation program is paying off and is allowing us to be able to absorb all these transactions on our digital channels, so we can reduce physical presence. Now we have been able to renegotiate major contracts including on our cards business, as we have already said, we have signed one of the best and the biggest deals with Mastercard. We have renegotiated contracts relating to insurance and telecom agreements, contributing to cost optimization and efficiencies. The key other pillar is innovation and product leadership. We have been able to be doing some great things in terms of innovation and product delivery. We were the first bank in Qatar to launch products, including Visa Commercial Pay, which is a virtual card, corporate card for our corporate clients, which we were the first bank in CEMEA region in Central Eastern Europe, Middle East and Africa actually to offer this on using a mobile module as well. We were the first bank to introduce Mastercard Move real-time payments, cross-border foreign currency payments in more than 30 corridors, including SEPA, Africa, Asia Pacific. And we were the first bank to work with the Central Bank to deliver the foreign payment initiatives, instant payments actually and the first bank to introduce HIMYAN, which is a local debit and prepaid card with benefits. On the part of the digital transformation, as I have said before, we have invested in a full revamp of our Retail Mobile app. More than 160 features have been facelifted. We have added more than 50 new features, and we have seen an increase of subscriptions by more than 44% and increase of active users of more than 22%. More than QAR 5 billion worth of transactions have been processed through our mobile app and we are very optimistic that utilizing this tool, this digital channel will enable us to reduce further branches and also have everything on the mobile. Some key features that we have launched include everything from statement, salary statement, bank account statement, top-up of loans, new loans. And we are also recently obtained the approval from QCB to go live with digital onboarding. So we will be able to add new clients using mobile app. Also, we -- actually, the good news is also that on Google Play and Apple Store, we are ranked as #1 application in the country, which solidifies our aspiration to be leading innovation in the banking industry. Also, we have been able to recently launched a full Corporate Mobile App for our corporate clients with 65 features. We are one of the few banks in the country to offer these digital capabilities to our corporate clients. So with the Visa Commercial Pay, the virtual corporate card that I mentioned before, enhancing our capabilities on our corporate online Tadbeer. We are offering a full digital service capabilities to our corporate clients and this is very much appreciated. Also, we have plans to launch a new super application in 2025 that will be not a typical banking app, but will give our clients the opportunity to facilitate all their needs throughout this application, which includes ticketing, et cetera. This digital transformation journey has been recognized globally and Global Finance gave us the Best Retail Bank in Digital Transformation Award in 2024 and we have been named by Finnovex Bank with excellence in digital banking. We have also launched the fintech and innovation hub where we are working with fintechs in the market and is part of also the country's vision for 2030. Now in terms of process improvements, we have been able to restructure account opening processes, centralize operational activity and reducing turnaround time to open a new personal loan from 3 days down to 1 day. So this has been actually seeing some significant customer satisfaction out of this process improvements. In terms of another big significant event is the funding achievements we have done. We have been successfully issued USD 500 million EMTN bond at a competitive rate of 5.25% which was 4x oversubscribed, reflecting the strong market confidence in the bank. We have increased funding duration and stabilizing key ratios like LDR and USD LCR for a healthier funding mix. And also, we introduced the first Green Repo. Moving to sustainability and ESG leadership and implementation, we actually were able to complete Phase 1 of our ESG strategy implementation, aligning with the Qatar National Vision of 2030 and with the Qatar National Central Bank guidelines. We have also been able to initiate Phase 2 of this project to address climate risks, integrating this into our risk appetite and positioning the bank as a leader in sustainable finance. Also as part of our partnership with Mastercard, we have been joining their priceless Planet Coalition program and the carbon emission calculator program. We have been able to partner with gold to drive ESG transformation and enhance brand health. And also as part of our efficiency and also move towards establishing strategic partnerships, we have actively engaged in high-profile sponsorships like the Amir Sword International Festival, Ooredoo Marathon and ‘ExxonMobil Open. Now without further ado, I would like to give the word to our CFO, to talk more about the highlights of the financial achievements in 2024. And then we can come back for a Q&A session and take it from there. So Aman...

Thank you, Dimitri. This is Aman, the CFO of the bank. I'll now take you through the bank's performance for the financial year 2024. Overall, a very positive year, as Dimitri explained on the backdrop of significant transformation as well as business growth. Focusing on the balance sheet first, the total assets grew by around 8.9% year-on-year, a combination of both loans as well as investment growth. The loan growth was around 5.1% coming primarily from the public and the GRE sector. The guidance for loan growth in 2025 will be similar in the range of 5% to 6%. The investment portfolio grew by about 12.6%. Investments mainly coming from investment high-quality liquid assets. The customer deposits decreased marginally by 1.4%. However, the overall funding and liquidity remained strong and our overall funding base increased by around QAR 2.7 billion, and we had a very successful issuance of EMTN during Q1 of 2024, amounting to around $500 million. The LDR remained in check. We were able to bring it in line with the regulatory requirement of 100% from 104% last year to 98.25% this year. The LCR, which is a measure of short-term liquidity also remained solid, around 167.5% as of December. The capital remains strong. Our CET1 ratio being 13.3% and overall CAR around 19.6% and our guidance based on the expected growth that the capital ratio will -- the capital adequacy ratio will remain in the range of 19.25% to 19.5%. Coming to the income statement. The bank achieved a profit of around QAR 851 million, which shows a growth of 10.7% year-on-year. The net interest income declined by around 5.9% year-on-year. The NIM was around 1.92% and the guidance for NIM in 2025 is some about 185 basis points plus/minus 5 basis points. The total cost of the bank increased by 4.7%, which resulted in the cost-to-income ratio being 38.1%. The guidance for cost-to-income ratio in the coming year is going to be 37% to 38%. The impairment, the loan loss impairment for the year was around QAR 702 million as compared to QAR 892 million last year, showing a decline. The cost of risk was around 118 basis points versus 154 basis points last year. So this is a positive development with respect to the cost of risk. The guidance for cost of risk for the coming year is around 120 basis points to 130 basis points. The NPLs remained flattish as compared to Q3, around 7.43% and marginally increased over last year from 7.36% to 7.43%. The guidance for the coming year, we want to maintain it around 7%. The specific provision coverage increased to around 75% as compared to 59.2% last year. The guidance for 2025 coverage for specific provisions as we are building it, it should be around 80% to 85%. Now the bank is open to the Q&A session. I'll hand it back over to you.

Thank you for the presentation. So we are ready to take questions. [Operator Instructions]

This is Chiro Ghosh from SICO Bahrain. A couple of questions. First is asset quality seems to have improved quite a bit. The coverage has also improved. Just want to get a sense that why are you being pessimistic with the cost of risk guidance, especially on the longer term? I mean, 2025, I can still understand. But the longer guidance appears to be very conservative. I mean if you can give us -- throw some more color on it. From the NIM perspective, also I've seen the NIM has weakened a bit despite CASA being quite strong. So if you can give some ground reality, how is the funding scenario, how is the yield scenario to just get a better sense of the NIM? Yes, these are my two questions.

Thank you for your question. This is Salman Siddiqui. I'm the Chief Risk Officer for the bank. On the coverage, as you see the guidance, we have taken a conservative view in terms of looking at not only our portfolio, but industry-wide view of portfolios as well and how the economy is positioned for the foreseeable future. Although there are many avenues where the country bureau has huge potential and they are contributing towards a growth in the economy. Our view is more towards a conservative view as to how the existing portfolios are going to pan out in terms of their future outlook and the sort of economic impetus towards those particular sectors where banks in particular have felt the pressure over the last 2 to 3 years, which is particularly post World Cup. So we've taken that into consideration. And we have made our assertions, excluding any, I would say, government intervention for resolutions, we've taken a very holistic view that should everything go in terms of how it is and how we see the numbers coming through, these are our estimates. And if anything works in contrary to that, it will only be an upside for us.

Thank you. Chiro, for the second part of your question, this is Aman, the CFO. Regarding the NIM, I'll give you the reasons for decrease and also a bit of a guidance for 2025. So the NIM for the first, I would say, half of the year, it was slightly declining, primarily the reason was the deposits were getting adjusted at the new rate. The loans were already adjusted last year after the rate hike, last rate hike. So we -- actually the NIM started improving during Q3, the period between Q2, Q3. But as you know, at the end of Q3, there was a rate cut. So naturally, the way our loan book is structured, all of the loans are price sensitive. They were reset, but the deposits will show a lag in getting adjusted. So as we speak, the deposits are getting adjusted to the last rate cut. And that's why there will be a further decline in NIM for the first 3 to 4 months, I would say, early Q2. If there are no further rate cuts, the NIM will start improving post that period.

So how are you placed in, say, if the rate cuts happens faster than expected, less 4 rate cuts happen or lesser rate cuts happened, how are you placed in a...?

So in that case, for us, the way our portfolio is structured in the short run, we would have NIM squeeze, right, because all of our loan portfolio will be adjusted, whereas the funding side will not react immediately. It will go a bit of a lag 3 to 4 months. So that is -- in the long run, of course, we'll be better off. But in the short run, this will get squeezed.

So we have a next question from Rob Skepper.

It's Rob from Ashmore here. Yes, I guess following up a little bit from those questions really. So I guess looking at the medium-term guidance, that kind of medium-term ROEs come down a bit. And I guess from what we can see on the buildup, it's a little bit guiding NIMs down. So it would be good just to understand what assumptions have changed, why you think your structural NIM is a bit lower, but that's offset somewhat with a slightly lower structural cost of risk guidance. And then a big change in cost to income. And so -- and is that change in cost to income, is that a function of higher costs for some reason? Or is there some other income that's kind of missing from the new guidance or that you're kind of a bit more concerned about? Yes, it'd be good just to get a little bit of color on that, please?

Okay. I'll take it the first question about the NIM. As earlier explained, the decrease was because of the way the portfolio is structured. So the guidance changed accordingly because we have to take a view on the rates. So when the rate cuts happened, the view was clear that there will be cuts in the last part of Q4. So we gave the guidance accordingly. Now based on the new views on the rate, we are not expecting rate cut to happen until June, so it will post that. So if that is the case, our NIM will start improving in Q2. This is one. Second thing regarding cost to income, yes, I mean, the cost has become elevated. As Dimitri was earlier explaining, we're going through a significant transformation. Naturally, it would entail investment in people, processes and systems. So this is getting reflected in the numbers and the financials as well.

So on the cost of risk side, I would like to reiterate here the slight conservative numbers that you see there for 2025 onwards are at the back of we see certain resolutions of our historic, I would say, strained accounts coming through. And that would cause a slight shrinkage in the portfolio initially. And that lag effect of new assets replacing them has been accounted for because as you know, there is a gestation period between the time a credit is approved and by the time it gets funded. So we've accounted for that gestation period and have taken that conservative view. However, we are very confident that the actual numbers might be below our guidance that we are conservatively guiding towards for now.

Okay. Okay. Got it. And then the other one, I just wanted to -- sorry, to come back on a bit. So if we look at that medium-term guidance and that cost-to-income guidance, I think previously, it was cost-to-income guided at 25% and now it's been moved to structural guidance of kind of around 30%, 31%. So I just kind of wanted to understand -- I appreciate like the investments you're doing now, but I guess that long-term guidance, that's in the part of the cycle where you front-loaded a lot of those costs. So I just wanted to understand why that cost-to-income kind of long-term guidance has moved up from, as I say, 25% to kind of 30%.

Yes. So the long-term guidance for the cost-to-income ratio is around 30% to 31% in the next 2 years. So as we are going to transformation, the investment and as I explained in people, process and system is happening now. So naturally, with time, once we have the whole structure in place, that investment will, of course, go down. And our cost-to-income ratio in the next 3 years, we're targeting in the range of 30% to 31%.

Okay. Okay. And then just moving a little bit more near term. So just looking at, again, asset quality and looking at that Stage 2 book, which did see some improvement throughout 2024, both in terms of the volume of Stage 2 loans, but also the provisions against that moving up. So that's great to see. I just kind of wondered if you could talk to us a little bit about some of your expectations for 2025 on the Stage 2 book, like what kind of scenarios are plausible in terms of reducing the stock of Stage 2 loans? And also in terms of the coverage against Stage 2 loans, like are you happy with the current provisioning level? Or should we expect coverage to continue to rise against Stage 2?

Okay. So I'll break your question into 2 parts. The first part being -- what kind of a transition do we see in the Stage 2. So we see some positive movements in Stage 2, some curing happening and moving towards Stage 1 post completion of its mandatory curing period. That's the first part. The second part is as far as transition towards a further deterioration due to further increase in credit risk, we do not see that happening because there are some very strong potential resolutions that the bank is working upon of certain Stage 2 customers, where once those resolutions come through, where we are at a very mature stage of working on those resolutions, we see the Stage 2 number further, I would say, improving in terms of reduction -- that's the first part. The second part, as far as the coverage continues, that's going to be true probably in terms of when the number would reduce, obviously, the coverage would tend to improve. And we see a stable coverage continuing to be around the same percentage that you see today and maybe slightly improving. So we do not see any untoward circumstances that may force this percentage to drastically be in contrast to our expectations.

So I have a few questions on the chat box here. So the first one is from [indiscernible] . Could you please provide insights into the income from financial investments, which saw a significant decline in Q4 '24? Additionally, how should we approach modeling this income moving forward?

Sure. This is Dr. Fawad Ishaq, I'm the Chief Treasury Investment Officer. So on the investment book side, as we have been sort of guiding in terms of making sure that this investment book is more HQLA for us. And given the limitation in terms of how much we can expand the book on non-HQLA, the focus has been to keep it as a liquidity book, but also being cognizant of the fact that the size of it has to be in line with what is required from a ratio perspective and funding perspective. So we have made sure that we also benefit from taking some of these -- taking the book and making sure that the capital appreciation that we saw in terms of the rate move and the curve shift, we were able to reduce part of the portfolio in terms of taking some profit on the underlying available-for-sale assets as well. So it has been the balancing act where we had grown substantially the book from '23 in the -- and then we try to sort of take benefit of the drop in rates in the -- towards the end of the year by taking some capital gains on it and keeping the book intact [indiscernible].

Thank you for that. I have another question from Nikhil. What led to strong recoveries in Q4 2024? Which sector did it come from? Do you expect such recoveries in 2025?

So I think we saw certain recoveries in the real estate and contracting sector for sure. So most importantly, yes, we saw some major recoveries coming through there. Moreover, we see that with the government taking certain initiatives to ensure that the real estate contracting sector has extended certain easing, I would say, steps from the government, we see this particular recovery to improve in the coming months or so or in the coming quarters during 2025. That's the first part. The second thing is the bank has also has a very focused approach during the year and would continue with that approach during 2025 and beyond as well, where there is a dedicated department within the bank now, which is focused on not only looking after this particular stress portfolio, but also on devising the client-by-client strategy towards recovery and gauging multiple options through permutations, combinations, scenario analysis as to what exactly is the most viable option for the bank for recoveries. So this has worked really positively for the bank and we would continue to further this effort in the coming quarters and the years.

Thank you, Salman. Nikhil has another question. NPLs are plateauing out, especially during Q4 '24, where we saw a minor jump as compared to previous quarters. Does that indicate that the management does not see any further deterioration that is from Stage 2 to Stage 3?

So as we mentioned earlier, I think our NPLs have remained flat over the last 2 to 3 quarters, I would say, for sure. Given that, that is at the back of the management's efforts that I just referred to in the previous question. And they have -- those efforts have yielded or have started to yield the results that we were foreseeing when those efforts were initiated. We are very confident that those efforts as they are taking -- as they're shaping up would only continue to yield positive results and resolutions, which would result in a further improvement in the NPL ratio either towards a decline or at least not further deterioration. This is what we foresee.

Thank you Salman, I can see [indiscernible].

Just a few follow-up questions. Firstly, on the NPM resolution that you talked about that they are in pretty advanced stages. I'm guessing should we be expecting some resolution to start reflecting in the first quarter, second quarter kind of numbers? How soon do you expect those?

Okay. So I would refrain from giving a very definitive time line because such resolutions also involved a regulatory approval process which has its own intricacies and the modalities involved. So I would not want to quote a hard line or a hard date or timing here. But for sure, we are very optimistic that the resolutions that are in works will definitely be completed within the time frames that we are looking at and will continue to reflect through our quarterly results, I would say, throughout the year. So I would not want to put a hard time line.

Sure. No, no, I appreciate it. But just a link question that, I mean, once you have a resolution, is there some restrictions on how quickly you can move those Stage 2 loans back to Stage 1?

I think as you would -- I'm sure you're aware that there's the accounting standard itself IFRS 9 by which the entire world governs its accounting provisions now has an underlying requirement of the curing period and the minimum curing period is a year that you need to adhere to before you start moving accounts into cured buckets or performing standards. So there will be different, however, there are circumstances where the regulator may allow you an earlier movement into cured bucket. So like I said, there is a regulatory process involved. So I would not like to take the privilege or the advantage of committing something on behalf of the regulator, which may not pan out as I would translate it to...

Sure. So my next question was on fee income. We've seen second half has been better than first half. It's seen steady improvement. Just wanted to get a sense of where that's coming from and how should we expect that trend to continue into 2025? And just looking at the split, it's from the split of fee income, it appears that the bulk of it is coming from bank services. So just wanted to get your thoughts around what to expect? What are the key drivers here on improvement?

Okay. For the fee income, the bank in the past year or so has paid attention to grow the noninterest income as well. So this has been a topic for discussion in various investors calls. One of the significant things that happened last year was our agreement with one of -- with Mastercard, as Dimitri earlier explained. So the bank is now focusing on the revenues where we can generate noninterest income and the trend you would see in the coming year, the proportion of fee income coming from banking services will continue to be at similar level. So this is what we are targeting.

So we have a question here on the chat box from [indiscernible]. Can you share some color on real estate construction sector exposure for the bank and asset quality for these segments?

I think we have shared it earlier as well, but I would say that the portfolio is around 21% -- QAR 21 billion. Yes, it's around QAR 21 billion as we speak. And as of 2024, the bank has been really selective now in terms of real estate and contracting sector growth. Most of the efforts are concentrated at this point in time on, I would say, sustaining the portfolio, making sure that the portfolio remains intact, remains performing. The sector has gone through a period of pressure which we see government is taking certain concrete steps to ease of that pressure. We see those steps coming in. We've seen certain movements starting to take place in the sector. There are projects being announced by the government pointing towards, providing the impetus that the sector needs at this point in time to create that economic activity within that sector and its augmented industry. So we see things moving in the right direction. Is it -- regarding whether we see real estate construction contracting further ballooning up, it depends upon -- we'll have very selective appetite, first of all. The other thing is we'll also be governed by our risk appetite, most importantly, and the concentration limits that we've set, we would like to adhere to them and diversify towards other sectors as well where in line with the country's diversity direction, we would rather grow certain portfolios there to ensure that the book remains well diversified. So that's our thought around it.

So the next question is from Abhinav Sinha. Your loan growth remained flat quarter-on-quarter in 4Q. Any color on that? So the 5% to 6% guidance this year is expected to be realized in H1 or H2? Also the yields on loan appear to be under slight pressure in Q4. Was it because of high government loan mix?

Okay. So now the growth for -- first of all, I'll answer for the growth guidance. The loan guidance for the current year, as I earlier explained, will be in the range of 5% to 6%. Now shifting to the yields. The yields in Q4 decreased because of the decrease in the interest rates in the market. There were three rate cuts that happened during Q4 of around 100 basis points. So that led to lower yields on loan portfolio. And what was the third question? This was it, right? NIMs and am I missing something there?

No, I think that's it. Yes. So we have another question from Nikhil. Can you please give us some information on how the management perceives the minimum implementation of OECD tax? Will the 15% rate apply from 2025? Currently, are you paying any social security to the government?

So I think regarding this global minimum tax, the legislation is not out yet, although the country has signed a treaty. So what we are doing, we currently, we are working on the impact assessment and the impact assessment will be finalized once the legislation is out. But having said that, on a high level, we are expecting provisions of around 15% of our annual profit. So this is what we are doing internally. That's it.

So we have one last question. Any plans to exit the international operations? Will the bank be subject to the new tax regime? That's the same question, yes.

See, again, this is a very strategic view that we have to take. And currently, this is something that we will explore. As per our strategy today, we need -- we have international operations that we're keeping. But again, we don't know in the future. But as we speak, we are keeping those operations.

I think that's it, but I think Murad has one follow-up question. Does the ROE guidance for the 2025 incorporate the corporate tax of 15%?

Yes. The simple answer is yes.

I can't see any more questions. So thank you, everyone, for your time, and I'll hand it back over to Hesham for any concluding remarks.

Thank you, as always, for hosting the call, and thank you to all the market participants. As you all are well aware, for any follow-ups, please reach out to me directly. And on behalf of my group CEO and the Chief that attended the call, we wish you all a successful year. Thank you all very much.

Thank you. Thank you, everyone.

Thank you.