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

Good afternoon, everyone. Thank you for joining us today. This is Janany Vamadeva from Arqaam Capital, and I'm pleased to welcome you to Doha Bank's Semiannual 2025 Earnings webcast. Without further ado, I'll now turn the call over to the Group Deputy CEO. Over to you.

Hello. Good afternoon to everyone. On behalf of Sheikh Abdul Rahman, our Group CEO, I would like to thank you for joining Doha Bank Q2 results investor call. Doha Bank's performance for the second quarter of 2025 is a period marked by continued progress across the bank's operation. Since the launch of the strategic Himma Transformation, we have been relentlessly focused on building a stronger, more agile and digitally enabled Doha Bank. Our brand strength is growing and our reputation with clients, partners and investors continue to strengthen. Let me begin with a few strategic highlights from this quarter. The transformation -- actually, our digital transformation is accelerating. In Q2, we delivered over 20 new features across our retail and corporate platforms. Our [indiscernible] corporate mobile app continues to gain traction in the market. We even gained the best corporate top award in the market. For retail customers, adoption continues to climb with four major releases improving functionality, security and convenience. We have more than 44 percentage increase in subscriptions, more than 21% increase in active users in our mobile banking application, which still continue to be ranked as #1 in Apple Store and Google Play. We signed a landmark MOU with Blackstone during the Qatar Economic Forum, a pivotal collaboration, giving Qatari investors access to world-class private market strategies. Our credit ratings were reaffirmed by both Fitch and Moody's, reflecting our current fundamentals and improving risk management. In a strong show of investor confidence, leading private sector investors joined our shareholder base in Q2. We also continue to strengthen our funding profile, successfully closing a EUR 500 million 3-year syndicated loan, marking our entity -- our entry into the euro-denominated market. In terms of business group progress update. In retail, we saw a strong momentum in product campaigns. In digital engagement, as I have described before and operational efficiency, including a big robust growth of 33.6% year-on-year growth in housing loans. We are continuing to focus on expense prudent management on fee income, on -- working on more innovative features and put more features on our mobile banking application and making sure that we also bring CASA. We had more than QAR 100 million in CASA, working with wholesale banking and increasing signals. In wholesale banking, we continue enhancing our global transaction banking proposition, driving cross-sell under the One Bank strategy. In international banking, we delivered strong growth in [ FI ] syndications while continue to expand with new relationships. And in treasury investments, we manage market conditions effectively growing the fixed income portfolio, enhancing hedging solutions for clients. While external factors such as geopolitics impacted the loan book drawdowns, we remain focused on our portfolio optimization. Our deliberate exit from low-yield exposures strengthens the path to sustainable profitability. In closing and on behalf of Chief Abdul Rahman, our group CEO, I would like to thank our clients, our employees, partners and shareholders for their continued trust. Our journey under him is still unfolding. But quarter-by-quarter, we are proving that Doha Bank is transforming with discipline, with ambition and with purpose. We remain committed to building long-term value, reinforcing stability and contributing to Qatar's economic diversification goals. Thank you all for joining. And with no further ado, I would like to hand it over to Mr. Aman, our Group CFO, to share the financial highlights.

Thank you, Dimitrios. This is Aman, and I will take you through the financial highlights for the H1 of 2025. Starting with the balance sheet. The total assets grew by 16.2% year-on-year and 11.6% year-to-date. The growth coming mainly from the investment book of around 10.3%. Loan growth was mainly muted on account of geopolitical situation towards the end of Q2 for which we had some healthy pipeline that could not be drawn out due to the ongoing situation, but we expect this pipeline to be drawn down towards the second half of the year 2025. Having said that, there was still year-on-year growth in the loan book of around 1.7%. And we still maintain the guidance for our loan growth target to be in the range of 3% to 5% for the year. The customer deposits were flattish around 0.2% increase year-to-date. But our liquidity remains strong with LDR around 91% and LCR close to 350%. The capital continues to remain healthy with the bank's CET1 close to 13.13% and total capital ratio at around 19.19%. Given the expected growth and given the results on the share buyback, if it happens, the guidance for CAR is to be around 18.25% to 18.75%. Moving on to the income statement. The bank achieved a profit for the first 6 months of around QAR 467 million, a growth of 8.1% year-on-year. The net interest income increased by 1.5% year-on-year. The net interest margin stood at 1.74%, which is down 18 basis points as compared to the year-end. We maintain our NIM guidance to be in the range of 1.85%, plus/minus 10 basis points. As we move towards the end of the year, the last bit of the liabilities, we expect them to be repriced down. And this is a guidance which we have been giving since the start of the year, that the first 6 months will see partial NIM contraction, after which we'll see increase in NIM towards the end of the year. The bank's total operating cost increased by 8% year-on-year and the cost-to-income ratio stood -- sorry, at around 39.1%. The guidance for the cost-to-income ratio for the full year continues to be around 37% to 38%. The net impairment on loans for the first 6 months stands at around QAR 322 million as compared to QAR 417 million last year for the same period. Cost of risk stand at around 141 basis points as compared to 139 basis points for the same period of last year. The guidance for cost of risk still remains the same between 120 to 130 bps. The NPLs slightly increased to 7.66% as the loan book has slightly contracted, but there has been no new addition in the numerator for the NPL. The guidance for NPL continue to keep the guidance at around 7% -- bring the ratio down to 7% towards the end of the year. The specific provision coverage is at around 78.8% compared to 74.8% as of the end of the year last year. And the guidance for coverage is for specific provision coverage to be around 80% by the end of this year. We now open the floor for question and answers. I'll hand the call back to you, Janany.

[Operator Instructions] As we wait for questions to arrive, I have a question on the tax exemption. From what I understand, Doha Bank is exempt from paying Pillar Two tax for 5 years. Just wondering what will happen after the 5-year period? Will it still be exempted or do you have to carry out another exercise to see whether you qualify for that?

Okay. I'll answer this. See, the guidance in the executive regulation is for the exemption for the first 5 years, and this is how we foresee it. So it gives us as a bank time to reevaluate our strategy for the international locations. Having said that, after 5 years, based on the current guidance, we would foresee a tax liability.

And my next question is on loan growth, you did mention that you expect the pipeline to be drawn down. But what sort of growth are you expecting for H2 or full year?

Okay. So it's 3% to 5%, but I'll let CRO maybe shed some light on it.

This is Salman Siddiqui. I'm the Chief Risk Officer for the bank. As my colleague, Aman has mentioned and the Deputy CEO mentioned earlier as well, the growth target that we're pursuing is around 3% to 5%, which is backed by quite a strong pipeline. Some of the deals that were in the pipeline, which got slightly delayed during the quarter that we're reporting because of the recent regional conflict that the world witnessed, certain elements came into play, which actually restricted the disbursement of those loans, I would say. And you will see that Q3 will witness that growth and the pipeline would transpire into actual disbursements. So we expect the 3% to 5% to consistently be achieved during the remaining two quarters.

[Operator Instructions] We have our first question. I think NPL ratio is up to 7.8% now, but guidance remains at 7%. Can you please explain what you expect to see in H2 that gives you this confidence? Is it loan growth or some asset quality resolution?

I think I'll take that question. So the NPL ratio is actually at 7.65. And that is again led by the disbursements that did not take place during the close of the second quarter, I would say, rather than addition of any new NPLs into the book. If we look at essentially our Stage 3 portfolio, it has remained the same. There's no addition to the portfolio in Stage 3, which essentially means the bank has not moved any new names into the NPLs, which again, points towards the quality of the new assets that have been booked, which are of high quality and better ratings. Second part is that, yes, it will be driven -- we anticipate that the resolution of NPLs or the lowering of the NPL ratio will be driven by multiple factors. The first one being the loan growth, which we definitely expect to take place during the Q3 and Q4 period. Second, the resolution of certain remedial names or NPL names that is at the verge of finalizing. We are at very advanced level of certain resolution of accounts, which our remedial team and -- are working upon. And we are in advanced stages of discussion with the Central Bank as well. And subject to the Central Bank's approval, we see that those names getting resolved will bring in the much anticipated resolution to the NPL ratio or lowering of the NPL ratio. The bank is also pursuing Out-of-the-box solutions in terms of getting the subject matter experts on board in terms of NPL resolution and getting the best practices in place to ensure that the bank remains at par with the best market practices as regards the remedial portfolio.

The next question is what will drive the improvement in NIMs in H2 '25?

Okay. So I would just try -- I would just reiterate what I mentioned earlier. Our financial guidance for NIM was that during the first 6 months of this year, there'll be contraction based on the liabilities that we have as they're getting -- as they start getting repriced after the last rate cut that happened towards the end of last year. So the growth in NIM would come from reduction in cost of funding that has already started, and we have already started seeing movements in starting of Q3 in reduction of cost on funding and the improvement in NIM. So the answer would be the reduction in cost of funding.

[Operator Instructions] So we have another question from [indiscernible] fees and other nonfunded income is picking up. Do you give guidance on rate here? And could you talk a bit more about where the opportunities are? If the group becomes one of the main players in the market as hoped, what contribution could NFI, nonfunded income be to total income in, say, 3 years?

Okay. So for the -- okay, I'll start with the fee and commission part of it. So we have seen a growth of around 10% year-on-year. And as we have given guidance in the Q1 call, the plan is to keep the fee and commission income to be around 15% of the total operating income for this year and growing by 1%, 1.5% towards the next 2 to 3 years as a percentage of total operating income.

It looks like we don't have any more questions, Hesham. I would like to just ask one last question. Like would you have any update on the share buyback program?

It's still under regulatory approval process. So -- we await their decisions as we speak.

We have one question. The cost base is growing as part of the transformation. When does this slow? And what is OpEx growth for the next 3 years?

So the cost continues to increase, as you rightly mentioned, because of the transformation, and this would be the case until the end of next year. Our guidance on cost-to-income ratio after 3 years is to be around 30% to 31%.

The next question is, does guidance and cost of risk remain at 120 to 130 bps?

Yes, it will remain around the same region of 120 to 130 basis points barring any extraordinary resolutions that we see, and we do anticipate the resolutions that I've mentioned in one of my responses. If that be the case, we are not factoring them in for now. If that be the case, you will see a substantial drop in that. But for now, we would rather remain a bit conservative and remain at the 120 to 130 bps guidance.

It looks like we don't have any more questions. So I'll hand it back over to you, Hesham.

Thanks, Janany, and for everyone that dialed in and participated on our call, I appreciate it. You know where to find me. I will be in the office for a couple of weeks before my leave. If you need any follow-ups, I'll be happy to organize the call with the chiefs that are sitting here with me for you. Other than that, I wish everyone a safe and happy summer. Thank you. Bye.

Thank you, everyone.