Dukhan Bank Q.P.S.C. (DUBK.QA) Q4 FY2025 Earnings Call Transcript & Summary

Hello, everyone. Welcome to the Dukhan Bank Conference Call. Please note that this call is being recorded. I'd now like to hand over to our QNB moderator for today. Shahan, you may now go ahead, please.

Thank you, Eli. Hello, everyone. This is Shahan from QNBFS. I want to welcome you to Dukhan Bank's Fourth Quarter and Fiscal Year 2025 Financial Results Conference Call. So on this call from management, we have Ahmed Hashem, the Bank's acting CEO; Osama Abu Bakr, Group CFO; and Riaz Khan, Head of Reporting and Budgeting and Investor Relations 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. Good afternoon, everyone, and Happy New Year, also a warm welcome to all of you joining us today. Before turning into our financial results, I would like to briefly frame our performance within the broader economic and sectoral developments and pattern during the fourth quarter of 2025. Qatar ended '25 with solid macroeconomic fundamentals and renewed growth momentum. According to the IMF, real GDP growth is estimated at around 2.6% to 2.9% in '25 with a sharp acceleration to above 6% in '26. This is driven primarily by LNG capacity expansion and resilient non-hydrocarbon activity. Medium-term growth is expected to average around 4%, while non-hydrocarbon GDP is projected to grow at approximately 3.6% to 4% annually, reflecting a diversification under the third national development strategy. Inflation remains contained, expected to normalize towards 2% to 2.6% in '26 providing a supportive backdrop for consumption and investment. The energy sector continues to anchor economic stability. Qatar remains among the top 3 LNG exporters globally, supported by strong output from Ras Laffan and rising export volumes during '25. LNG capacity is set to rise with an increase of nearly 85% in phases until 2030. These developments provide long-term visibility for physical revenues, liquidity and investment cycles. The real estate and construction sectors continue to stabilize and gradually reaccelerate in the fourth quarter of '25, supported by lower interest rates, infrastructure spending and population normalization. The manufacturing sector increased its contribution to GDP, adding QAR 26.8 billion in the first half of '25, supported by trade agreements, PPP frameworks and expanded services. Logistics performance remained robust with Qatar ports record steady growth in the transshipment volumes, reinforcing Qatar's role as a regional trade and reexport hub. In summary, Qatar's enters the '26 from a position of economic resilience, policy credibility and structural growth. LNG expansion provides scale and stability while diversification across real estate, construction, manufacturing, logistics, technology and financial services continues to broaden the growth base. The banking sector remains strong. Digitalization is accelerating, and wealth management opportunities are expanding. This environment provides a solid foundation for sustainable growth for the economy and for our bank. Now with that, I'll hand over to Osama and Riaz, who will take you through the financial results. Over to you, Osama.

Thank you, Ahmed, and welcome, everyone. We are very pleased to share with you that Dukhan Bank has delivered another set of results for the financial year ended 31st December 2025. The group achieved a record net profit of QAR 1.41 billion, representing a 5% year-on-year growth. These results were delivered while maintaining strong assets quality, prudent risk management, strong liquidity and continued progress in digital innovation and Sharia-compliant customer solutions. For the year ended December 2025, our group's total assets reached the highest level at QAR 123.8 billion, underscoring continued growth across our portfolio, highest-ever profitability underpinned by a persistent year-on-year growth in net banking income by 6%. Liquidity remains strong with ratios above regulatory thresholds. The bank achieved an impressive growth of 21% and net current and saving accounts, CASA, underscoring customers' confidence and strength of the bank's value chain. Our capital adequacy ratio stood at 18.4%, well above the minimum requirement, highlighting the bank's solid capital base. The Board of Directors have proposed to the general assembly an additional distribution of cash dividends of 8% of the nominal share value, i.e., QAR 0.08 per share for the second half of this year. The total dividend distribution for the year ended 31st December 2025 will be 16% of the nominal share value i.e., QAR 0.16 per share with a strong dividend yield of more than 4.5%. Outlook for the year 2026, our focus will remain firmly aligned to our strategy, building a leading digitally enabled bank centered on exceptional customer experience, delivering sustainable well-balanced growth with continued discipline on capital, liquidity and risk. Strengthening our people, culture and capabilities, ensuring the Dukhan Bank remains a place where talent thrives. Creating long-term value for shareholders while contributing meaningfully to Qatar's economic and social development. We expect mid-single-digit balance sheet growth aligned with the country's GDP trajectory, led by wholesale and private banking. Profitability growth is expected to mirror this trend, supported by stable NIMs. Asset quality is expected to remain stable with cost of risk around 55 to 60 basis points. 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 year-end financial. To you, Riaz.

Thank you, Osama. Let me begin with a brief overview of group's balance sheet performance as at December 2025. Our total assets reached all-time high at QAR 123.8 billion underpinned primarily by financing assets of QAR 90 billion, representing 73% of total assets. Investment securities contributed 20% of the total, amounting to QAR 25 billion. We achieved 4% 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 continued our efforts to diversify while leveraging long-standing relationships with our clients and maintaining a balanced maturity profile. As a result, we maintained a regulatory loans-to-deposit ratio of 98.1% with both LCR and NSFR comfortably above the regulatory thresholds, demonstrating bank's sound liquidity management. Also, on the nonresident deposits, they remained minimal at 5.8% of the total deposits. This is in line with our strategy to focus on stable domestic funding sources. Now turning to profitability. Our record financial results reflect a solid delivery against our strategy with net profit rising to 5%, that is QAR 1.41 billion, supported by a 6% 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, despite challenging external conditions, prudent management of funding costs provided further support to 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 overall profitability. These results highlight group's resilience and its ability to sustain growth in an evolving operating environment. On credit quality, the bank improved further during the year, where the NPL ratio declined to 4.2% from 4.6% at the end of last year. Stage 3 coverage stood at 75.7% versus 73.1% at the end of financial year 2024. This coverage is over 90% when including the effects of eligible collaterals. Stage 2 loans represented 9.9% of the gross loans with a solid coverage of 8.6%. Our financing book remained well diversified, covering all sectors, including government, 21%; real estate 24%; commercial lending, 13%; consumer financing, 9%; contracting, 4%; industry and manufacturing, 3%; and services and others about 26%. Exposures to government-related entities accounted for 17% of the total financing book at the end of December 2025. GRE exposures are currently reported within their respective sector classes as per the investor presentation. Our capital adequacy ratio stood at 18.4%, well above the regulatory minimum of 14.63%. Now moving on to the global minimum tax. Regarding the developments on the topic of global minimum tax, Qatar introduced a 15% minimum tax for multinational groups in line with the Pillar 2 framework during the first quarter of 2025. While the enabling executive 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 markets accordingly. In summary, our financial 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 shareholders. With that, we now open the floor for your questions. Thank you.

[Operator Instructions]Your first question comes from the line of Salome Skhirtladze of Bloomberg Intelligence.

I have 3 questions, if I may. The first one, if you could give us a little bit more guidance on the cost of risk side, what could be the level over the next 2 years, including the coverage? The second question, what would be your target ROE over next 2 years? Does the number or did the number change since past year? And the third question on the interest rate sensitivity. You mentioned the NIMs are expected to remain stable. If you could give us the interest rate assumption for the U.S.

My apologies, it looks like our attendee got disconnected. Let's move on to the next question for now. Our next question comes from the line of Abhinav Sinha of Lesha Bank.

Thanks for the guidance. I have a couple of questions. One is, when you say that the loan is expected to grow mid-single digit. What are the underlying assumptions? Like is it only the 2%, 3% inflation or there is something else. And second thing is on our investment securities, if I look at your balance sheet, so this has been stable at around QAR 20 billion, QAR 21 billion, but this year, it jumped to around QAR 25 billion. So any color on what was driving that?

Yes. The loan growth is driven by the activities and the general activities of Qatar. We have a strong pipeline, as always, at the beginning of the year. This will be driven by mainly wholesale banking and private banking. The investments increased during the year 2025 is mainly coming from government-related papers, Sukuks. I hope that clarifies...

Your next question comes from the line of [ Andrew Noble ] of Ashmore.

I have a few things, some of the questions that the lady who got cut off maybe. So could you talk a little bit about your ROE expectations in terms of over the next few years? Is there a level management would like to get to? Is management compensated for targeting that? Is it a KPI? Could you also talk a little bit about rate expectations when you say the NIM will be stable? What are you assuming, please? Cost control a little bit, given the digital focus, the cost income ratio is not going in the right direction. So is there a target or plan to improve that, please? And then on asset quality, what is the Stage 2 loans level that you think that you can get to over the next few years? It still could be a little lower, I know it's not -- I know there are worse ones out there, but I would just be interested in your thoughts, please. Thank you.

Thank you, Andrew. Regarding the ROE, definitely, it's one of the management KPIs and something that we keep monitoring. We aspire to be within the average banking ROE levels, i.e., 14% to 15%. Definitely, we'll not jump to that number from 11% in 1 year, we are hoping to phase it out in the coming 2 years to 13% and then to the 14%, 15% over the coming 5 years. When we say rates -- our NIMs are going to be stable, we are not assuming any rate cuts during 2026. Hopefully, we will have some, we wish that we have some, but now it's very difficult to give a direction. Depending on the market conditions and the overall liquidity in the market, rate cuts works in our favor usually. As we used to say in the past, each and every 25 basis rate cut considering a very stable market without any shortage in liquidity, it translates to around 4, 5, maximum 6 basis points depending on the situation. But so far, our guidance that very, very low level improvement in our NIMs around 2 basis points, I do expect without any rate cuts. The cost-to-income ratio, we keep focusing on digitalization, as we mentioned earlier. And unfortunately, this year, there was a little bit of a spike around 100 basis points in the cost to income. I don't see that happening in 2026, but I would see a stabilization in the ratio. Regarding asset quality, if I understand your question correctly, I don't see a big move in Stage 2 or Stage 1. Stage 1, definitely, the growth will be translated in a growth -- corresponding growth in Stage 1. But Stage 2, I don't anticipate, as we speak today, any major moves in Stage 2 in or out from Stage 2. I hope that answers your question.

Yes. Maybe just 1 on nonfunded income, please. It's been quite volatile over the past few years. Are there some guidance you can give on the growth of that or maybe as a percentage of contribution to total income, please?

Yes. If you recall, in the first quarter of 2025, major jump took place in that quarter where we had some deals finalizing on that quarter, and we booked a good fee income we don't -- we cannot give you guidance. If we take the Q4 of 2025, that will be our normalized fee income for the 2026. Having said that, as usual, we have some deals. If they materialize, we might have a good improvement, but that is very difficult to quantify at the time being.

[Operator Instructions] Your next question comes from the line of Shreekant Wable of Decimal Point Analytics.

Yes. So most of my questions are already answered, but I would like to have more details on cost-to-income ratio. So previous year, you have given guidance of below 30% mark, but you have missed that guidance by pretty much big difference. And if I look at the last quarter number, the other expense looks on a very higher side. So any colors on that will be really helpful. Was there any one-off included? And secondly, how will you see this ratio evolving going ahead? Those are my 2 questions.

Thank you for this question. As you have mentioned, we gave guidance to be in the 30% level. But unfortunately, we crossed that. The reason is we had some initiatives relating to digitalization that took or finalized before the anticipated date. We anticipated them to close post 2025. So the expenses related to those initiatives has been booked in 2025. And it's not a secret once you have a good year, you tend to expense more as much as you can, giving -- leaving a buffer for new initiatives in the years to come. So that was a deliberate increase because our bottom line supports such an increase. In the future, we would like definitely in the coming 5 years, we would like to see it in the mid-20s as per the best practice and as per the average for the banking sector in Qatar, that will take us some time. So as a guidance for the year 2026, I believe 30% level is a good guidance.

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

Apologies, I think my line was cut for some reasons. So just one follow-up on the capital side. You mentioned 14%, 15% beyond maybe 1 or 2 years. Does it assume the capital distribution plan? Or given the medium-sized growth outlook, what would be your stance of the capital management?

Salome, yes, so in terms of the ROE, as Osama mentioned, in the midterm, we'll target to be in a range of 14% to 15%. And that will be very closely aligned with the markets or, let's say, the very older banks, which are bigger in size of us also. So to reach to this target, obviously, we have to boost our main streams of businesses or the revenues, which we are working on. So we have plans for the next 5 to 6 years or in the midterm, let's say, we'll try to boost this net banking income, controlling the OpEx and then managing our cost of risk. And that's how we'll be able to reach to those levels as far as the payouts or the capital management is concerned, I think we are in a very comfortable position in terms of the overall capital. In terms of the payouts, right now, even if you see the payout ratios among the banks, we are among 1 of the most generous banks, which we operate. I think this number will tend to slightly tilt downwards in the midterm. If you look in the midterm sense, and that will be close to somewhere 55% to 50% could be a good number going forward, but not in the short term, and that's what I'm saying in the medium term. And that's how the overall achievement of this target of 14% to 15% can be achieved. Salome just 1 more point to add here that you have to really take care. I mentioned about the payout ratio declining, it does not mean the actual DPS will decline. Either it will remain constant or it will improve eventually. But as far as the payout ratio, yes, it will be slightly, let's say, will get adjusted in close to 50% to 55% range.

But in total, if you take total payout, including buybacks, would that number be the same?

As of now, buybacks are not on the table, so I cannot comment about that. So that's something -- it's something which has not never been discussed at the Board level at this point of time.

Now we don't have any pending questions. I'd now like to hand back to Shahan for final remarks.

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

Thank you, Shahan. Thank you, everyone. Thank you.

Thank you for attending today's call. You may now disconnect. Goodbye.