Qatar International Islamic Bank (Q.P.S.C) (QIIK) Earnings Call Transcript & Summary

Good day, and welcome to the Qatar International Islamic Bank Q2 2021 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to CFO, Hossam Khattab. Please go ahead.

Good afternoon, Everyone. Thank you for joining our call today. I hope you enjoyed the Eid holidays. I am going to start my presentation today with Dr. Mohammed Ghiyath, Head of Treasury. I'm going to cover first -- I will give first highlights about our performance in Q2 2021. I'm going to start with our market share. In Q2, QIIB enhanced our market share, so the total asset -- market share is about 16.9%, financing assets grew to be 15.7% by end of Q2. The customer total as well is enhanced to be at 16.2% of the total listed Islamic banks in Qatar. We'll move to the -- second point is about our capitalization or market capitalization. As well in Q2, QIIB continued to enhance its market capitalization. We increased -- actually, our market capitalization increased by 6% from USD 3.63 billion in Q1 to be at USD 3.86 billion in Q2, which represents about 6%. However, if we compare to last year June, it is about 14% growth in our capital -- market capitalization. About -- next point about our network. We operate within 15 branches, one of them is a COVID branch. As well, we are planning to open a second COVID branch by early 2022. Our network is about 86 (sic) [ 83 ] ATMs. We have -- we replanned our network -- ATM networks to be located within the biggest service centers, mainly in hospital, airports as well gas stations and lounge. We are planning as well to put additional ATMs within the Q2 -- Q4 -- Q3 and Q4 to cover additional strategic locations mainly in [indiscernible] in Qatar. About shareholder structure, we still maintained the same shareholder structure since last year. 65% owned by Qatari companies and individuals, 17% owned by QIA, Qatar Investment Authority, 18% owned by GCC and foreign nationals. The major highlights for financial statements of Q2, will -- I will first start with the balance sheet highlights. Half year to half year or June '20 to June 2021, the asset growth is about 5.3%. We stand at QAR 62.5 billion. Total deposit grew by 11.6% to be at QAR 58.7 billion, mainly from standard deposits, which has grown by 17.7% to be at QAR 24 billion in Q2 2021. Financing activities grew as well by 16% to be at QAR 40.6 billion in Q2 2021. Total equity grew by 4% to be at QAR 8.3 billion. That was for the balance sheet item. If we move to the income statement items, we -- our financing activities grew by almost 5.3% to be at QAR 950 billion -- QAR 950 million. Financing activities income dropped by 17% to be only QAR 189 million, mainly due to the investment with banks and conversion banks as well due to the drop in the market interest rates, which has impacted our income from finance activities significantly in Q2 2021. Commission and fee income grew by 38% to be at QAR 114 million compared to QAR 82 million in June 2020. This one mainly driven by the good income from our [indiscernible] operation, GLC state finance basically operation as well in 2021, compared to 2020 where we have the blockade due to the COVID-19 pandemic. That's why it's impacted our fees and commission in June 2020. However, this year, due to the opening again and we start to do our operations are normal, so our commission and fees income enhanced by almost like 38%, as I mentioned. Total income grew by 4.3% to be at QAR 1,264 billion compared to QAR 1.211 billion in June 2020. Operational costs or expenses, we managed as well to reduce -- to enhance our operations, and we reduced our operation cost to be by 2.7% to be at QAR 165 million by end of June 2021. Total provisions as well, we enhanced it. We increased our provision in June 2021. We have about 72 entries in our cost of fiscal provisions to be at QAR 195 million in Q2 2021 compared to QAR 115 million in June 2020. Cost of funds are mainly deposits and financing costs. We managed as well to reduce it by almost like 4.6% compared to June 2020 last year. Net profit grew by 6.1% to stand at QAR 545 million compared to QAR 515 million last year June. That was the major highlights for the financials. I am going to move to the business segment overview. Basically, we operate our business for [ the front ] 3 major business segments. We'll start with the corporate finance, which represents almost like 49% of the income. We have about 46% representing the asset size. It's followed by personal banking financing activities, which represents almost like 22% of the total assets and the contribution into the income about 35%. Treasury and Investment business, representing about 32% of our total asset and the contribution into the income about 16% this June 2021. Now I'm going to give more depth about our financials -- our performance in Q2 2021. The assets and financing, mainly the growth is driven by the financing income -- from financing activities increase. It represents almost like 65% of the total assets of the bank. And the financing book split mainly driven by government, which represents about 20%, real estate is about 18%, consumer or consumption loans about 35% and rest more contribution from other business segments. We notice as well this -- it's almost flat compared to this half. However, we have about, as I mentioned earlier, 16% quarter-to-quarter. But compared to December, we have almost flat growth. However, we have good growth from the corporate activities by 5.5%, retail activities -- retail financing grew as well by 5.3% compared to December, although the government finance dropped by 15.3% compared to December 2021 -- so compared to December 2020, sorry. In terms of asset quality. As I mentioned, for asset quality, QIIB continue as well [ strong ] asset quality in Q2 2021. Our non-performing ratio dropped from 2% in June 2020 to be at 1.6% only in Q2 of June 2021, which is less than the market average. Market average is almost like 2.1%. We ended the market average by about 50 basis points. The split of our financing book by Stage 1 is almost like 19% of our book. And the coverage or the provision provided about 0.5%. Stage 2 is about 8% of our total portfolio, which represents about -- and the ECL has been [ provided ] Stage 2 almost like 8%; however, last year it was almost 6% -- 6.3% to enhance as well the Stage 2 [ provision ] in 2021. Good overall coverage ratio achieved for Stage 3. Stage 3 coverage ratio in June 2021 stood at 77.2% compared to 70.9% in December and 56% in June 2020. The next slide -- topic is about profitability and operation efficiency. As well we maintained our operation efficiency in 2021. We even enhanced it to be at 18.3% only compared to 20.3% in December 2020, and it dropped from 21.3% in June 2020, which is good and they are considered as a second best ratio in term of -- in the Qatari market. Return on average assets about 1.8%, which is consistent as well with last year. Return on average equity is about 15.8%, which is up from 13.5% at December 2020. And profitability breakdown or working income breakdown, 90% of our income comes from financing and 95% actually -- 90% from financing and investing activities. And we have a small contribution from fees and income and banking -- other banking services, which is about 10% only. If I'm going to -- move to the capital adequacy and the breakdown of our capital. Our capital structure mainly, Tier 1, 94% of our capital is Tier 1 capital, only 6% is Tier 2 capital. Our capital adequacy stands at 17.3% compared to the required 13.5% per the QCB, which is above -- which is compared to December as well. December, we closed at 16.55%, so we almost have about 85 basis point growth from December 2020. Tier 1 ratio as well as CET1, which is actually 11.85% compared to the minimum required by 6% only. So from the capital adequacy perspective, we are well capitalized and we are well above the required percentage or required minimum price per QCB. If we're going to summarize our performance in Q1. So as we mentioned, Q1, we have asset loss compared to December by almost 2%. We have 6% -- 7% growth in term of customer deposits. We are almost flat in financing assets. But compared to June 2020, we have 16% growth for financing activities. Total income grew by 4.3%, net profit grew by 6.1%, [ NPF ] stand at 1.6% and cost-to-income ratio at 18.3%. Now I close the funding decision -- sorry, close the financial side. Now I'm going to give the floor to Dr. Ghiyath to cover the funding of overview.

Hi, everyone. QIIB funding overview. QIIB funding is predominantly driven by customer deposits and equity of investment account holder. And QIIB has leveraged its expanding branches network and corporate relationships to steadily grow its deposit base. If we look at QIIB funding split, we can see that 50% of the QIIB funding come from equity of investment account holder, customers, and -- which 13% comes from the capital, 12% come from current account, and we have 19% come due to banks and 4% is from Sukuk. And if we look at this 50% customer equity of investment account holder, we can see that 60% come from individual and 30% come from government and semi-government, and from corporate 10 %. And if we compare our funding split between December and -- December 31, 2020 and quarter 2, we do not see that major changes on the funding part. If we see to the our growth in total customer deposits, we can see that QAR 8.5 billion come from equity of investment account holder and QAR 2.1 billion come from current account. That gives you some highlight of our bank funding. For credit rating, we are rated by Fitch, A by Fitch, and we are rated by Moody's A2 and by Capital Intelligence A. And this is -- I mean the outline -- we are the third largest Islamic bank in Qatar. We are based in one of the fast-growing market in the world. We have very strong brand since 1991. We have second largest Islamic banking network in Qatar with 15 branches. And we have strong capital position and asset quality. Any questions?

If you allow me Dr. Ghiyath before the first question to let one important point about our funding book is that our nonresident deposit is less than or almost like between 8% to 9% -- 10% nonresident deposit. However, the market is about more than [ 30% ], which is -- we managed to maintain our nonresident deposit within the minimum ratio, the minimum [ 10% ]. So now we can open the floor for any questions.

[Operator Instructions]

Hossam, I have a question regarding provisions. For 2021, do we expect provisions to be flat with 2020? Or do we expect a little drop or maybe higher? Because in 2020, you reported credit provisions of QAR 231 million. So for 2021, do you expect a flat number or slightly higher?

As I mentioned, we are targeting to enhance our coverage ratio. Last year was targeting to be at minimum 80%. So I hope by this -- now we are at 77%. So we expect to maintain the same non-performing ratio at 1.6%. So if we're able to maintain at 1.6% by end of year, I expect to have a small amount of provision. Otherwise, [Foreign Language] if the non-performing ratio has increased, definitely we would have to increase as well the [indiscernible].

We currently have no questions queuing. [Operator Instructions] And we do have a couple of questions that are queuing now. So we take our first one from Shabbir Kagalwala from Al Rayan Investments.

[Foreign Language] I have a couple of questions, if I may. You mentioned that you want to enhance the coverage for Stage 3. Any particular target which you would like to reach till the year end if -- for Stage 3 coverage? And is there a target for cost of risk as well?

Yes. As I mentioned, Shabbir, we wish to maintain the coverage ratio for Stage 3 to be -- to reach 100%. So -- but for this year -- that was the target for almost like 2 years back. So we -- this year based on the non-performing ratio and how much we're going to close the year end, we are turning to at minimum to reach at 83%. So that was for this year in order to be able to complete [indiscernible] coverage in either Q2, Q3 [indiscernible].

Right. And any target for cost of risk? Are you happy with the current level? It also depends on the...

[indiscernible] provide 35 basis points to 40 basis points. Last year, we have increased to be about 50 basis points. This year, we intend to be at the normal, which is about 30 basis points for the [indiscernible].

Right. And I had a question on -- you have -- you mentioned that you have the lower -- among the low income ratio in the industry. Is there any target to bring it lower? Or you're happy with the current level?

Currently, we are happy with what we executed so far. But definitely, we still have the ambitious plan to enhance our operational efficiency and to increase our services and the products to our [indiscernible]. We have a very ambitious digital transformation plan. And definitely, this one is going to impact our cost-to-income ratio significantly in 2022. But as of now, definitely, we are happy with what we achieved so far.

Right. And you in -- on the loan side, Q2 was slightly lower versus Q1. You mentioned that you lost some of the government loans during this period. What's the target area for growth? And any guidance for 2021, '22 through in terms of loan growth?

We -- our struggle to be at almost like 2% above the normal GDP -- normal economy target growth -- expected growth. So we are targeting actually between 5% to 6% at worse -- year end of 2021, and that was the plan from the beginning of the year. But this is -- the market performance and the new business will come definitely during the Q2, Q3 and Q4. That was a little bit doubted. So we think to close the year-end by by 5% to 6%, which is our target from the revenues.

And my last final question. You mentioned about growth in the fee income. Just wanted to clarify because the line was a bit off, just [indiscernible]. You had a strong fee income growth in the second quarter. How much of it was one-off or nonrecurring of it? And what do you see for the remainder of the year?

No. There's [indiscernible] one-off fees, but the majority of it is due to the amount of business we achieved during 2021. Last year, almost like 4 months, this has been with closed business banking operation due to COVID-19. This year, we opened most of our branches, so we will work with full capacity and good business. We will have a good growth for finance activities, which impacted our as well banking service income. We have a good growth [indiscernible], which has -- it's really impacted our trade finance commission and other banking operations, service commissions as well. So we expect to continue this achievement. We see good growth [indiscernible].

We now move on to Amit Jain from Franklin Templeton.

I had a couple of questions. The first one was on cost-to-income ratio. It's looking really good. So I want to understand if this is the sustainable? Second was, if you could talk a little bit about the funding situation in Qatar, in general, both local currency as well as, that's better?

The first one, what was about, sorry? Cost of...

Cost-to-income ratio.

Cost-to-income ratio. Okay. Good. As I mentioned before, the cost-to-income ratio continued to enhance. It is not kind of one-off we achieved during the past 3 years. If you noticed, since 2020 -- 2019, we started our cost-to-income ratio year-over-year, which become at 18.3. And if you noticed, in 2018, it was about -- even 2020, it was about 26.7. We grew to be at 24.9 in 2018, 24.1 in 2019, 20.3 in NPA of December 2020, and now we're at 18.3. So we still have a plan to bring it more. But so far what we achieved is we are proud of and definitely our plans for 2022, it will try and get more down. I hope [Foreign Language]. So I believe it is a sustainable achievement. It's not kind of one-off and it will grow again.

Okay. The second one was about funding.

About funding. Dr. Ghiyath.

Yes, yes. Funding for our bank [indiscernible] we are like a sole. Our funding is almost Qatar riyal and that is unique. We do not have that problem. And if you see our customer deposit has been increased from December going crossing 6.8%. And we did some like series, which are encouraging customers and the -- we have around like -- we get around QAR 1 billion from those. So I mean -- and that's Qatar riyal as usual as Qatar. There's enough liquidity in the market, Qatar riyal, because some banks -- we'll make sure that all banks, they have enough liquidity to meet all its requirements, and they can do that by many ways. One of the ways they used during this Corona that it [indiscernible] some 0 interest. And that the bank into a lot of like funding for their book. And for us, we [indiscernible], for other bank they get more, and this is what -- I mean this is the situation for -- like for dollar and the other. Our bank, we do not have, I mean we're not exposed to like the deposit in dollars. We have only the -- we have Sukuk. We have issue like, which is -- the $500 million and the $200 million, and that's why we see like [indiscernible] Sukuk. And I mean as a bank -- especially they try not to reduce nonresident deposits, all banks. Now that's what they try and what [indiscernible] bought us. We did not [indiscernible] fully. We are maybe the lowest in Qatar for nonresident deposits.

And as well, to add to my colleague talked to what he mentioned, as he correctly mentioned, most of our funding book is Qatari riyal, and almost [indiscernible] our funding book is Qatari riyal. Then we have definitely U.S. dollar, and this one is meant as well with our funding book or our financing activities mainly in Qatari riyal as well. So we fund our Qatari riyal financing activities to our Qatari riyal revenue book.

That completes the questions in the queue.

Thank you, everyone. Have a good evening yourself.

Thank you.

Thank you, gentlemen.

Thank you.