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 First Quarter 2025 Earnings Call. We have with us in the call from Doha Bank, Mr. Dimitrios Kokosioulis, Deputy Chief Executive Officer; Mr. Aman Ula Khan, Chief Financial Officer; Mr. Salman Mustafa Siddiqui, Chief Risk Officer; Mr. Fawad Ishaq, Chief Treasury and Investment Officer; and Mr. Hesham Kalla, Head of Investor Relations. The call will begin with a presentation from management on the key highlights of the first quarter, and then we will open the floor for Q&A. I would like to hand over the call now to Mr. Dimitrios. Please go ahead.

Good afternoon to everyone, and thank you for joining us today. On behalf of our Group CEO, Sheik Abdul Rahman it's my pleasure to welcome you to our Q1 2025 investor call. Actually, I'm pleased to share that Doha Bank has had a very good 2025 with a strong momentum and significant progress that has been achieved across all key financial metrics and strategic areas. In the first quarter of 2025, thanks to the significant advancements in our human transformation program, we have achieved income growth and enhanced our operational efficiencies. Total assets have increased, reflecting our prudent balance sheet expansion strategy. These results highlight our resilience and disciplined execution as we align with Qatar's financial development goals. We have made substantial strides in strengthening our capital and liquidity positions. Our capital and liquidity continue to remain strong, demonstrating our prudent risk management and proactive funding strategy. Strategically, Q1 was marked by several key milestones. We successfully returned to the international debt capital markets with a benchmark issuance of $500 million at an additional top of $275 million, with investors reinforcing their confidence in our long-term vision. We also introduced several new innovative digital solutions, including the launch of a state-of-the-art corporate mobile app, which has been ranked also as the #1 app corporate app in the country and the enablement of new features on our retail mobile app, including digital account opening which further solidifies our leadership in this digital banking space. Additionally, we have been able to announce our intention to a share buyback, reflecting our belief that our stock is undervalued. And over the medium to long term, this initiative will reward both us and our shareholders. Looking ahead, we remain focused on executing our transformation strategy, expanding low-cost liabilities, enhancing cost efficiencies, and advancing our digital ecosystem. These are critical levers in delivering long-term sustainable value to our stakeholders while contributing meaningfully to the Qatar National Vision of 2030. Now with that, I would like to hand it over to our CFO, Mr. Aman, who will provide a more detailed overview of our financial performance over this past quarter.

Thank you, Dimitrios. My name is Aman, and I'm the CFO of the bank. I will quickly take you through the financial performance for the quarter of first quarter of 2025. We'll start with the balance sheet first. Overall, a very positive quarter, as Dimitrios earlier explained. Our overall assets grew by around 4.6% year-to-date and 12.7% year-on-year, results coming from both the investment and the loan growth. Our year-to-date loan growth was around 1.4% and 6.3% year-on-year, coming evenly from both the private and the public sector. Our guidance for the current year for the loan growth is around 5%. Year-to-date, the investments grew by around 7%, as well as 21.6%, year-on-year primarily coming from high-quality liquid assets. The customer deposits declined by around 1 percentage point marginally. But year-on-year, they were up by around 38%. The long-term overall funding remained intact. The loan-to-deposit ratio stood strong at around 96.26% within the regulatory requirement. Our capital base and the capital ratios remained healthy and strong. Our overall capital adequacy ratio was around 19.27%, with the CET ratio being 19.27%. Our guidance for the current year for CAR is between 18.25% to 18.75% on the backdrop of the share buyback, as Dimitrios was earlier explaining. Moving on to the income statement. We achieved a profit of around QAR 52 million for the first quarter of 2025, a growth of around 8.8% year-on-year. Net interest income also increased by around 6.4%. The NIM stood at around 1.9%, which was in line with what we had last year, Q1 2024 of around 1.92%. The guidance for NIM for the current year is around 1.85%, plus/minus 5 basis points, depending on the rate cuts. Our net fees and commissions increased 12% year-on-year. The total operating cost for the bank increased by around 10.5%, and the commission ratio stood close to 37.9%. The guidance for the current year for the cost-income ratio is to be around 37% to 38%. The net impairments on loans and advances for the first quarter stood at around QAR 229 million versus QAR 179 million last year. The cost of risk for Q1 2025 was around 149 bps versus 123 bps for the same period last year. The guidance for the current year for cost of risk is for it to be around 120 to 130 basis points. The NPL remained flat at around 7.4%, marginally declined from last year same quarter from the level of 7.46%. The guidance for NPL for the current year is for it to be around 7%. The specific provision coverage is around 77.5% as compared to 74.8% at the year-end 2024. The guidance for the coverage is for it to be around 80%, subject to if there are any write-offs, then the guidance will adjust accordingly. So now we're open to the Q&A. I'll hand it over to you, Elena.

[Operator Instructions] We have a first question from Nikhil. Nikhil, your mic is on. All right. I think Nikhil may have some issues with the mic. We'll move on to the next question from Chiro Ghosh.

I see a couple of development across the line items. Just 2 questions. First is, if you can give some update on what is the latest on the corporate tax, what you have been guided on that? I did not clearly understand. That's the first one. Also, I want to get a better sense of the borrowing demand. I mean how is the borrowing demand -- where do you see the borrowing demand panning out over the next 1 year? And especially if we see more rate cuts than what we have initially perceived like maybe 3 cuts or more. So yes, these are my 2 questions.

Okay, Chiro. I'll go with the first question about the corporate tax. So during March of 2025, there was a change in the draft executive regulations wherein it was mentioned that if we are [Technical Difficulty] operating in 6 jurisdictions or less, and then other condition was the net book value of our tangible assets is outside the main jurisdiction is less than EUR 50 million, then that particular entity will not be subject to pay any tax liability for the next 5 years. And naturally, we're falling under that. So we don't foresee based on -- again, based on the draft executive regulations, the change in those -- as per the change in those draft regulations, we are not foreseeing any tax liability in the next 5 years. And we have disclosed it in our financial statements as well.

Sure. This is Dr. Fawad Ishaq. I'm the Chief Treasury and Investment Officer. So on the funding side, we are very cognizant in terms of the borrowing cost and in terms of managing our liquidity. We, from a liability perspective, are weighted mostly in the 3- to 6-month bucket. So for us, every potential rate cut is benefiting in terms of the rollover of these liabilities to lower rates. Along with that, we have been expanding our long-term liabilities through syndications, bilaterals and EMTN. We did a very successful EMTN this year as a consistent sort of issuing in the EMTN market because we did our first one last year in March, and we said every year, we will come with an EMTN issuance to make sure we have a complete yield curve. So what we have done on the long end is that we have done 2 syndications, 1 end of last year, 1 beginning of this year. And we're using now the swaps which have gone down. So 2-year, 3-year swaps, which are at -- when they hit 3.4%, 3.5%, 100 basis points or 110 basis points of long-term cost, then we fix it around 3.60%, 3.65%, which is closer to the short end of the deposit curve. So our cost of funds have gone down this quarter, about 35 basis points from the rollover, and we expect that to go another 15 to 20 basis points factoring 2 rate cuts. But if there are 4 rate cuts, then naturally that will have more of an advantageous impact in terms of lowering our cost of funding further. So we manage the asset liability gap very closely and we manage it dynamically using swap market as a hedging instrument for that.

Just a follow-up. So if I look at your interbank borrowing, the liability side of it, over the last 1 year, roughly around QAR 12 billion has been added to that. Would it have any potential negative impact or...

So on the interbank side, it's partly because in the Qatari market, that is a major component from the systematic perspective. So every bank has a large amount of interbank and that is basically large banks are given the mandate to sort of facilitate the liquidity is no EMTN or loan syndication market in Qatar currently. So most of the reliance is on corporate deposits and interbank. So for us to manage the growth and manage the asset liability gap, sometimes we look at the cheaper interbank deposits to bridge that gap. But as you've seen, we have been paying off high-cost deposits. So we are probably the only bank which has been shifting sort of the deposit mix across board. That's why you've seen the interbank sometimes or due from banks go up, but this is not purely money market. This due from bank going up is funding our investment book through repos. So actually, if you look at how much the investment book has grown, it is proportional to how much we have grown in terms of the due from banks.

We will take the next question from Andy [indiscernible] [Audio Gap] I think he may have also some issues with the mic. We'll move on and go through some of the questions that we have received. Question from Nikhil. Your cost of risk for year 2025 is around 1.25%, suggesting that the next few quarters could see a good decrease in the overall provisions. Can we assume that it could be led by recoveries and also more lump sum in nature as seen in the past?

Okay. So I'll take this question. Thanks for this question. My name is Salman Siddiqui. I'm the Chief Risk Officer. So yes, we do expect some recoveries that are in the pipeline to materialize. We are awaiting certain regulatory approvals in terms of expecting certain resolutions as well in the book. More so this would be also coupled with the planned write-offs that the bank has forecasted in terms of where we have met the requisite requirements from a regulatory perspective to take the write-off, there they would also play into this entire equation. So we do expect that the number would be around the region of 120 to 130 basis points.

Following question from Nikhil. Can we know the reason behind the higher ECL charges for Stage 2 rather than Stage 1 as it deviates from the past pattern as the coverage for Stage 1 has fallen while Stage 2 increased if compared -- sorry, on a quarter-on-quarter basis?

Yes. So the primary reason is that there is a certain exposure where the bank is actively where we see SICR plan against that particular exposure as part of our farsighted view on that particular exposure. Therefore, you see that migration in the coverage between Stage 2 and Stage 1. However, in the coming quarters, you would see that as the book continues to grow, the Stage 1 coverage would immediately catch up on the older numbers. So we do not have any imminent concerns around the coverage as such, and we are very confident of meeting our expectations.

Thank you. Another question from Nikhil, looks like the cost-to-income ratio has been a bit higher than the past quarterly run rate with the full year guidance remaining at 37%, 38% while your target remains over the next 3 years at 30%, 31%. Can we know the steps likely to be taken by management to achieve the target?

So I'll take the question. This is Aman. For cost-income ratio, as we have explained in previous quarter as well, since the bank is going through a significant transformation for the next couple of years, the ratio is going to remain elevated. There are steps taken and we have explained in previous calls as well, we have taken -- we have initiatives basically to reduce the operational cost, and we have identified around QAR 100 million cost savings that will be allocated towards more I would say, profit bearings or income bearings and initiatives. But having said that, this ratio will remain elevated for a couple of years and the next year on the backdrop of transformation that we have in.

And also I wanted to just add that we are rationalizing all our expense line items. We are closing down branches, both domestically and overseas. We're going to rationalize our overseas network. And given the new technologies, the new automation that we introduced at bank and including AI, machine learning, RPA, this gives us opportunities to look at our operational cost as well and restructure and reduce head count, which we believe give us some breathing room and reduce and improve the cost-to-income ratio. So there are many such initiatives that we are taking place. And with more digital penetration, we have launched a corporate mobile app, we have launched a retail app. We see growth in subscriptions and active users. We are going to look into more branch closures and reduction of cost. But as Aman has said, investments that we are making in -- actually in our systems are going to -- these savings are going to be distributed towards savings that we're doing in our infrastructure and our systems, which is a critical next step for setting up and putting together the bank of the future.

We will try to take questions now from -- again from Andy [indiscernible].

Can you hear me?

Yes, we can.

Great. I got disconnected from audio entirely last time. Okay. So loan growth, the guidance is for 5%, which is lower than last year. GDP growth is accelerating in the country. So could you just talk a little bit about why you don't see that being as strong? Are there like write-offs or repayments expected somewhere? Or is it just being conservative? And then also which particular sectors are either delivering on this front or being a bit soft still?

Okay. Thank you, Andy. Regarding your question about loan growth, we have a couple of things that we want to mention here. Number one is that we do have a healthy pipeline of good high-quality assets that we are targeting. Ever since the transformation started, a lot of focus has been on addressing the quality issue. Naturally speaking, we have updated our credit underwriting standards. So the quality of assets that we are targeting is different from what the bank used to have. There's a healthy pipeline for it. But as you mentioned, there are expected repayments. There will be partly some write-offs. And we don't want to inflate our book with bad credit so we are chasing good credit in the market. And as you would know that based on the current environment it's a bit competitive as well. So we don't want to compromise on our margins at the same time. So that's -- I would say... [indiscernible] would also like to add on.

Yes, sure. Thank you, Aman, for that. So Andy, I'll just pick up from where my colleague just left. It's at the back of this very point that we are taking a bit of a conservative view on the loan growth in terms of we do not only want to focus on the book building part of it, but the remuneration part of the book as well. So we -- our focus is to build a book which has a sustained yielding tendency rather than a short-term view on the book. Moreover, we are also building a book which is diversified in terms of its concentrations. And as I'm sure you're aware that on the road to the World Cup, banks did end up with a certain concentration in their books. So we are also trying to diversify sectoral concentration and be selective on where we build the book, what kind of tenants do we get exposed to and the returns that we anticipate from those kinds of exposures. So we did take a bit of a conservative view.

Okay. Yes. That all sounds pretty good. Just on the cost growth, I know you talked about the cost-income ratio, but obviously, there's various aspects to that. Just in terms of OpEx growth, the transformation process is ongoing. Obviously, that costs a bit of money. There's a lot of consultants involved. 10% growth, is that the case for the next couple of years? And then when does it normalize and what is normal?

Andy, 10% this year, the growth will be in that range. Next year, the growth will be similar in the 8% to 10% range and [Technical Difficulty] start subsiding. So as I explained earlier, this and the next year are a bit heavy in terms of operational as well as total expenditures. After the year 2026, I would say the overall OpEx will start subsiding.

Okay. We'll take the next question from Lee Beswick. The balance sheet is still geared with very expensive additional Tier 1 capital of QAR 4 billion. Why didn't you choose to buy back the AT1 capital, which would have been more beneficial to common equity holders rather than buying back common equity, which will gear the balance sheet even more?

Sure. Happy to take that question. So, as you know, it's a strategic Tier 1 that we have placed. It's not something that we went out and did it in a public market perspective. There is a call date that we are closely monitoring. So, we have the option of calling it back if we feel that the cost of that Tier 1 sort of is not in line with our overall weighted average cost. But this is more strategic, and we have that ability to call it back. If we feel that from a perspective of how our funding mix looks like and what we are targeting in terms of overall cost, we have the ability to do that. And even if we need to increase that on the flip side of it, we have that ability to call it and reissue and increase capital if we are looking at expansion and more so if we're looking at putting more capital in some of our branches as that's part of our international growth strategy as well. So all options are on the table for us. And you can understand that it's still from a perspective of cost perspective, sort of is in line with what we're projecting if we do the comp analysis to where the Tier 1 trade in the market.

Another question from Lee Beswick. Is there a price at which you will stop buying back stock? Or will you buy at any price?

So see, now the idea that still we are under the execution. The execution still not started as per our press release last time. It is subject to regulatory approvals. Once it happens, then we will see engage the market. And we still haven't decided any particular target or price in mind. But as the market situation is when the execution starts, we will decide accordingly.

All right. Next question from Vinod Surendran. Asset quality trends in 2025, target NPLs and the Stage 2 loans in the medium term? And is there any update on the resolution of large ticket real estate exposure?

Yes. So thank you for that question. Yes, there is a view on certain exposures in the real estate sector where we see resolutions that are currently in the pipeline. There are regulatory discussions going on, on the same between the bank and the regulator on the proposed resolutions. The proposals of certain resolutions have been submitted to the regulatory authorities. We have received a certain approval on an exposure, which will come into effect probably in Q2. And there are further resolutions proposed rather and the proposals are with the regulator for seeking necessary approvals. Once approved by the regulators, you will see those resolutions getting affected in the books. Moreover, the bank is also actively considering engaging with third-party consultants in terms of bringing in the necessary expertise to help the bank in offloading or otherwise looking at alternate solutions for certain exposures where we see there's still viability, where we see there's still a secondary market for those exposures. So that is also an active thought under consideration.

A few questions from [indiscernible]. Could you share any color on problem loans relating to real estate?

I think I would just repeat the response that I gave. It's precisely the same response that, yes, the bank is actively pursuing the resolutions on certain real estate exposures that bring in a bit of a higher percentage in terms of their concentration or contribution towards overall portfolio. The bank has had some success in resolving certain exposures where we did get the required regulatory approvals. Those resolutions you would see getting affected in the book during the second quarter. At the same time, the bank is also conscious of the growth in the book so that every resolution that we see is backed up by a healthy growth in the book as well. So we do not only see exits or resolutions, but we also see a tangible growth in the book as well. Moreover, there are certain other resolutions or proposed resolutions rather, which are in the process of being reviewed by our regulatory authorities. And once those proposals are concurred upon by the regulators, would those be executed accordingly.

Another question from [indiscernible] Has GRE lending and deposits picked up?

Of course. So one of our areas of focus has been in terms of diversity and book growth, the GRE sector or public sector where we have seen a very healthy pipeline. We have certain very strong deals in the pipeline, which are undergoing the gestation period in terms of the approvals, the regulatory approvals. And once we get those approvals, you will see those deals getting executed and showing the numbers in the books. So yes, we are very optimistic. And you can see that the composition of the book has slightly moved towards the GRE, which currently stands around 5%. So this percentage, you will see gradually picking up.

And the last question from [indiscernible] Any plans to issue new debt to support the share buyback?

So definitely, we do not need to issue new debt to do the share buyback, but there is a clear funding plan for 2025. And we have sort of a very clear idea in terms of what do we need to raise across multiple sort of instruments that are available to us to support the asset growth overall. So we have already done our first EMTN, as I said, first indication was already done. The pipeline in terms of us looking at multicurrency issuance, private placement, potential syndication, and EMTN in the second half. So we will try to keep to the plan that we had already put in place, which matches exactly the funding that we require both from a regulatory ratio perspective, which is most of the deposit and longer term for LCR and SFR and also making sure that it aligns with the timetable for our pipeline for drawdown and supporting the asset growth. So to answer, there is an aggressive funding plan that we have in place to support asset growth. But for the buyback, we do not need to issue anytime.

All right. And a question related to funding from Vinod Surendran. He's asking specifically about USD bonds, senior notes, Tier 2 or AT1 capital instruments.

So as I said, we have a very clear sort of program put in place, which is our EMTN program. We have issued last year. Exactly the same sort of plan was followed this year. We will build a curve around. So every year, there's one issuance. We have a 2026 maturity as well coming in, in March, then we have the call date for AT1. So we will decide on the AT1 in terms of whether we want to call it or we want to renew it or we want to call it and issue. But no plans for Tier 2. I think, as you can see, a very strong capital base for us to keep on growing. But on the EMTN side, there will be regular issuance, both on public market and also private placement.

All right. A question from Lee. You stated a target for capital adequacy ratio. Do you also have a target for CET1 ratio?

In line with the capital adequacy ratio currently stand at around 13.1% CET1. So we are saying based on the amount of share buyback, the capital adequacy ratio will fall between 1.5% to 1.75%, which is approximately 50 to 80 basis points drop similar for CET1 as well.

All right. Thanks. Any thoughts on when the group could transform to Islamic status? Would there be a decision this year, next year? And how long would it take?

So, for that, as we have explained in our earlier investor call as well, I'll be very specific, last Q2 2024, investor call, our group CEO did hint on conversion to Islamic. As we speak, the talks are very premature. There is nothing concrete out there for us to comment on. So there's nothing that we can enlighten you with. There's nothing solid or concrete at our end, very premature.

If there are any developments on that front, we will keep you posted for sure.

What is your medium-term target for return on equity?

So it will be between the guidance for this year is between 6.5% to 6.7%. In the next 3 years, we're targeting double digits.

All right. Another question. Do you expect transfers from Stage 2 to Stage 1 assets? And what is the time line for this?

So we do anticipate certain transfers of certain exposures, which are awaiting completion of the curing period. Once that happens, you will see certain transitions happening from Stage 2 to Stage 1, and upon resolution and completion of the curing period, this transition would continue.

Any guidance that you can give on other non-funded income after a drop in full year 2025, but strong in Q1 -- sorry, full year 2024, but strong in Q1 2025?

I can say that the trend would continue the trend that we picked up in Q1 of this year, similar growth trend will continue. [Audio Gap]

There are no additional questions in the queue. And therefore, we can conclude today's call. I would like to thank the management team of Doha Bank for the presentation and all the answers they have provided today in the call. And I'll just hand it over to management for any closing remarks. Thank you.

I think that I would like to thank you again on behalf of our Group CEO for your attendance. I think it's very clear that there is a strong momentum as a result of the [indiscernible] transformation. And I think that we are very excited and by executing and continue to execute our transformation strategy, expanding low-cost liabilities, as I said before, and enhancing cost efficiencies and advancing our digital penetration, we are going to bring the results that we have actually outlined before in other investor calls, and we are confident about that. So we would like to thank you and look forward to seeing you again in the next investor call. Thank you.