Dukhan Bank Q.P.S.C. (DUBK.QA) Q3 FY2025 Earnings Call Transcript & Summary

Hello, and welcome to Dukhan Bank Conference Call. Please note that this call is being recorded. [Operator Instructions] Now I would like to hand the call over to Shahan, you may begin.

Thank you, Angela, and hello, everyone. I want to welcome you to Dukhan Bank's Third Quarter 2025 Financial Results Conference Call. So on this call from management, we have the bank's acting CEO, Ahmed Hashem; Group CFO, Osama Abu Bakr; and Riaz Khan, Head of Reporting and Budgeting and IR Officer. So as usual, we will conduct this call with first management reviewing the company's results followed by a Q&A session. I will turn the call over now to Ahmed, please go ahead.

Thank you, Shahan. [Foreign Language], everyone, and good afternoon. It's a pleasure to discuss our third quarter results and the broader economic context of Qatar's growth story. Over the past few months, Qatar's economy has continued to perform with resilience and balance supported by strong fundamentals and forward-looking policies. Let me start here with the macro picture, the IMF and the Oxford Economics reaffirm that Qatar's economy remains on a solid trajectory with growth projected at around 2.7% in '25 rising to 4% to 5% by '26, driven by expanding gas production and a vibrant nonenergy sector. In September, the QCB reduced the policy rate by 25 bps aligning with the Fed's easing cycle. That's a move expected to stimulate lending, encourage private sector investments and ensure liquidity. Real GDP grew 1.9% year-on-year in the second quarter, led by a 3.4% growth in non-hydrocarbon activities showing that Qatar's diversification strategy is gaining ground. Non-energy sector now contribute about 2/3 of national output, particularly in construction, logistics, tourism and financial services. A testament to the success of the third national development strategy and Qatar National Vision 2030. At the core of the medium-term outlook lies the North Field expansion. That's the world's largest LNG project, which will bolster physical strength and generate wide economic spillovers. In April, Qatar is scaling up -- sorry, in parallel, Qatar is scaling up renewable investments ranking among top 5 countries for renewable energy investment underscoring a balanced and sustainable energy policy. The country's diversification efforts are further reflected in the growing free zones Ras Abu Fontas and Umm Al Houl, attracting foreign investments in logistics, technology and manufacturing. Turning to the financial sector. Qatari banks remain in excellent health. QCB data shows commercial bank assets rising 5.5% year-on-year to QAR 2.11 trillion, with domestic credit up by 5%. Liquidity and profitability remains solid and the IMF confirms that the system is well capitalized and resilient. On the domestic front, real estate and infrastructure are regaining momentum as all awarded 13 new projects worth QAR 12 billion, integrating AI-based asset management and smart technologies. Visitor spending and luxury retail showed double-digit growth as Doha cements its global reputation as a shopping and cultural destination. The newly launched Qatar calendar '25, '26 features a strong lineup FIFA events and major conferences and events, all supporting hospitality and tourism sector growth. In summary, Qatar's economy continues to show strong momentum across all key pillars for the banking industry, this translates into healthy demand, robust liquidity and growing opportunities in digital and sustainable finance. Now with that, I will now hand over to Osama and Riaz, who will take you through the financial results. Over to you, Osama.

Thank you, Ahmed, and good afternoon, everyone. The bank has delivered a solid 9 months performance building on the strategic progress made in recent years. Our resilience and client-focused innovation have positioned us as a trusted partner and national economic advancement. For the 9 months period, our net profit reached QAR 1.19 billion representing a 4.4% year-on-year increase. Total assets reached a record of QAR 118.1 billion, underscoring continued growth across our portfolio. Liquidity remained strong with ratios above regulatory thresholds. Our capital adequacy ratio stood at 18.9%, well above the minimum requirement, highlighting the bank's solid capital base. Looking ahead to the end of the financial year 2025, we expect mid-single-digit balance sheet growth aligned with the country's overall GDP trajectory, led by wholesale and private banking. Profitability growth is expected to mirror the strength supported by stable NIMs in a range of 2.1%. The benchmark rates are expected to reduce further, it may support further margin expansion. Asset quality is expected to remain stable with cost of risk at 15 to 60 basis points. We will remain conservative, we will maintain a conservative provisioning approach continuing to build buffers. I will now turn it over to Riaz for a detailed overview of our 9 months performance.

Thank you, Osama. Let me begin with a brief overview of the group's balance sheet performance as of September 2025. Our total assets reached QAR 118.1 billion, underpinned primarily by financing assets of QAR 85.7 billion, representing 73% of the total assets. Investment securities contributed QAR 22.4 billion or 19% of the total. We achieved approximately 1% year-on-year growth in our financing portfolio, reflecting our disciplined approach to capital deployment and market share expansion. The focus remains on building a diversified high-quality portfolio prioritizing prudent risk management over volumes. On the funding side, we continue our efforts to diversify while leveraging long-standing client relationships and maintaining a balanced maturity profile. As a result, we maintained a regulatory loans-to-deposit ratio of 94.5% with both LCR and NSFR comfortably above the regulatory thresholds demonstrating bank's sound liquidity management. Also, nonresident deposits remained at minimal at 5.9% of the total deposits. This is in line with our strategy to focus on stable domestic funding sources. Now turning to profitability, our first 9 months results reflect solid delivery against our strategy with net profit rising 4.4% to reach QAR 1.19 billion, supported by a 10% growth in the net banking income. This growth was driven by our continued revenue diversification efforts with the stronger contributions noted from nonprofit income streams. Additionally, prudent risk management of funding costs provided further support to the group's net banking income. We remain committed to protecting our margins and managing the cost of funds efficiently. Our NIMs slightly inched higher to reach 2.1%. Operational efficiency also remained a key strategic focus with continued optimization efforts, enhancing the overall profitability. These results highlight the group's resilience and its ability to sustain growth in an evolving operating environment. On the credit quality, which improved during the period. NPL ratio declined to 4.4%. Stage 3 coverage ratio stood at 74.5%. The coverage is over 90% when including the effect of eligible collaterals, then Stage 2 loans represented 10.1% of the gross loans with a solid coverage of 7.3%. Our financing book remained well diversified encompassing all sectors, including government, at 22%; real estate, 22%; commercial lending, 9%; consumer financing, 9%; contracting at 4%; industry and manufacturing with 6%; and services and others about 29%. GRE exposures accounted for 17% of the total financing book as at the end of September 2025. GRE exposures are currently reported within their respective sector classes. Our capital adequacy ratio stood at 18.9%, well above the regulatory minimum requirement of 14.6%. Notably, the impact of interim dividends has already been factored into the reported CAR. Regarding the developments on the topic of global minimum tax, Qatar introduced a 15% minimum tax for multinational groups in line with Pillar 2 framework during quarter 1 of 2025. While the enabling regulations are still pending, we have conducted an initial assessment. And based on the same, we do not anticipate the group to be subject to a Pillar 2 charge. We will continue to closely monitor any developments in this regard and update the market accordingly. In summary, our 9 months performance reflects the strength of our fundamentals, strategic clarity and prudent financial management. We remain focused on sustainable growth, margin preservation and long-term value creation for our stakeholders. With that, we now open the floor for your questions.

[Operator Instructions] Your first question comes from the line of Zohaib Pervez with Al Rayan Investment.

I have a question regarding the -- your balance sheet and basically the loan growth. So you mentioned that you're still looking at a single-digit loan growth for our financing book growth for 2025. However, in the first 9 months, year-to-date, the loans are lower. So how do you expect this to -- what is your strategy to have a growth at the end of this year? Because you have a growth in mid-single-digit growth, that means your balance sheet or your loan book should grow by at least more than 5% this quarter. How do you expect to achieve this target?

Thank you, Zohaib. I think it's -- we are persistently mentioning in our calls for the last 3 times. In fact, it's mid-single-digit growth. So mid-single-digit growth. Firstly, let me clarify, it should be somewhere in 3% to 5% range. As far as the current trajectory is concerned, we are still comfortable to mention it mid-single-digit growth because it's a matter of timings, actually. So in first 9 months, we saw certain repayments flowing through, certain early repayments or early settlements also flowing through. So that affected the first 9 months trajectory. However, there are deals in the pipeline, and I think we mentioned it earlier, in the second quarter's call also that there are certain large-scale deals, which are in the pipeline which can materialize sometimes the size of the deal and the way the administrative things gets handled on those deals, affects the overall timings, and we end up closing the quarter. So it's still in a comfortable position. We expect that the major contributors should be from the wholesale banking, especially the government sector deals as well as the private banking deals and plus these repayments since they were getting matured or certain loans were getting early repaid. So that had to go out of the books. However, the new inventory, as what you highlighted in terms of the overall growth we still expect that the deals which are in the pipeline should get materialized before the year-end, and we can comfortably meet our target of mid-single-digit growth.

Sounds good. Okay. Just second and last question is on your net financing income margins. Now that we have had one cut after some time how do you see further cuts? How many further cuts does the bank expect? And how do you see your net financing income margins panning out post these cuts?

Yes. So in terms of the margins, if you would have noticed in first 9 months, without any rate cuts as what we were mentioning, the historical rate cuts, which happened on -- especially in the Q4 of last year, they started to materialize. So we saw some positive impacts, our NIMs inched higher, slightly almost 9 bps got added in the NIMs in 9 months. And that is mainly a factor of the last quarter's -- that is the Q4 of last year's rate cut. Now going forward, it's difficult to say how many rate cuts and at what time it's going to happen. One we already saw in the month of September, specifically last -- second last week of September on 18th, September precisely. Now going forward, there is or 2 meetings, which -- Fed meetings, which are in the pipeline. So again, it depends on the circumstances. There is a lot of gray areas, which needs to be enlightened before things looks quite precise how the rate cuts will look like. If you see the dot plot on Bloomberg, it's varying on a daily basis. So it's difficult to estimate or even guesstimate. However, the stance, which we always tell the market in terms of our NIMs and the rate cuts and the sensitivities, how they look like. So with each 25 bps to 30 bps, we see a rise in the NIM of 6 to 7 bps on an annualized basis. So again, I'm very specific on this point that this is a very theoretical calculation based on which we determine that how much on a sensitivity basis like with 25 to 30 bps rate cut, we get a 6 to 7 bps rise in the NIM on an annualized basis. Again, the timings, the maturity profile of the assets, the repricing of the loans as well as the rebooking or the repricing of the deposits takes precedence in the actual world. I hope I answered your question.

Your next question comes from the line of Salome Skhirtladze with Bloomberg Intelligence.

I have actually 2 questions on the NIM again. Just to have a better idea on the sensitivity, assuming only 1 rate cut going forward over the next like up to the year-end. What could that mean for your NIM upside? If you could quantify the sensitivity of NIMs? And what is your medium-term ROE and profit growth target if you could also give us the number?

Thank you, Salome. In terms of the first question on the NIMs and you mentioned that there is 1 rate cut is expected. Again, I would be very much conservative on this one. But again, even if we consider the 1 rate cut I told you on a spectrum of next 365 days, we should see on the last day, a rise of 6 to 7 bps with each rate cut of 25 bps. So that you can estimate that at least in this next quarter, we should not expect anything on the rate rises. We already added 9 bps in the historical 9 months of this year. So we are in a very comfortable position to close the year at a similar NIM. On your second question in terms of the medium-term outlook for the ROE it should match to the market basis, which is currently at 14% to 15%. Medium term means in next 5 years term, that's the bank's strategy and target to achieve an ROE close to 14% to 15%.

Can I -- just one thing to specify on the NIM side. So if we assume flat rates -- so if I correctly understand, your NIMs right now, the level of current NIMs already incorporate all the results of the rate shift, right? There is no lag effect, if I correctly understand?

The rate cuts of the last year have already been incorporated, most of them. However, the 18th September rate cut that's going to materialize as we move forward. Sometimes the loan gets repriced earlier, then the liabilities, it depends on the timing when the rate cut is happening. So again, on theoretical grounds, with each 25 to 30 bps, you tend to see 6 to 7 bps rise.

Your next question comes from the line of Abhinav Sinha, Lesha Bank.

I'm not sure if it's already answered, but just can you explain me the drivers behind the net fee and commission income and how we should see it for the full year?

Yes. Thank you for your question. I think the fee income has been quite robust in this year, especially if I see the trajectories for the third quarter, where we saw a significant rise in terms of the fee income. This -- there has been, again, some ups and downs, some one-offs, in fact. There has been certain early settlement fees, which we booked because certain customers paid it early. So that is a function of that. As far as a good reference point for you to take it forward in terms of your projections, I think the Q2 of 2025 should be a clean number with which you can take it forward with an addition of 5% -- it was something QAR 4 million -- or QAR 64 million to QAR 65 million on a quarterly basis.

Your next question comes from the line of [ Andy Rubino ] with Ashmore Group.

Just on the fee side. Just on the nonfunded income side actually. Was there a one-off again -- sorry, was there a one-off in the third quarter there as well? If you could just talk about what, again, what the normalized level, maybe the normalized level of nonfunded is near in the first half, but that would be useful, please. And then my second question is just a little bit -- maybe a little bit more color on the loan growth pipeline that you spoke about from the earlier question. Could you maybe give us a sense of just so maybe we can have an idea of what areas are you seeing this kind of activity in this kind of increased credit demand, what particular segments of your business or sectors within industry, it would be interesting, and also what sort of visibility do you have? Does this pipeline sort of see you clear as you stated to the end of the year? Or does it also bode well for, say, maybe the first half of next year as well? That would be great.

Thank you, Andrew. On the fees front, your first question, yes, there was one-offs. I can say I think a good number for your future calculations or for the modeling purposes, should be the second quarter of 2025, which was very much clean from the perspective of the one-offs, QAR 64 million to QAR 65 million could be a good number. And we can keep on adding on an annualized basis, 5% to 6%, which is a natural growth. Yes, I think this is more on the first question. Maybe second question Osama will like to take this and answer.

Yes. Regarding the anticipated growth in the loan book, as Riaz earlier mentioned, the 3% to 5%, we are comfortable about this guidance from now until the year-end. As we mentioned earlier, we have been very selective in our expansion or lending policy. We have reduced our exposure, as you can see in the investor presentation to the real estate sector. So the anticipated growth is going to come from industrial GREs and the government. So it's going to be very selective kind of deals, supporting the North Field expansion and supporting the GRE's business relating to [indiscernible] and the other GREs. I hope this answers your question.

Yes. Great. Okay. Yes. And then sorry, just on the first question, sorry, I meant the nonfunded income. I heard your answer on fees, but also in the third quarter, it looked like there was some nonfunded income that was a little bit higher than prior quarters. So I wonder if you could maybe touch on that a little bit, please.

Yes. I think, yes, you're spot on. I think the ForEx income also got doubled compared to the previous quarters. Again, that was mainly a function of the volumes. We saw a rise in the volumes over and above, there are certain FX swaps, which where we realized it materially positively on that front. Over and above other income also saw a rise that, again, it's mainly a function of the hedging income, which we realized. So that's pretty much treasury front office, FX. These are the key themes where we realized most of the income.

There are no further questions. I will now turn the conference back over to Shahan for closing remarks.

Okay. If there are no more questions, we can wrap up this call, and I would like to thank to Dukhan Bank's management for giving us an update on the quarter, and we will pick this up again next quarter. Thank you.

Thank you, everyone. And hopefully, we'll get in touch in January to take you through the full year numbers. Thank you, everyone.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.