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

Good day and welcome to the Qatar International Islamic Bank Q4 2021 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Hossam Khattab, CFO. Please go ahead.

Thank you. Good evening, everyone. I would like first to thank you for you joining our first call in 2022. Wish you Happy Nee Year for all of you at your personal and professional level. My call or our call today will be presented by myself and my colleague, Dr. Mohammed Ghiyath, he is head of Divisional Investment. I will start my presentation today, first, with major highlights of our balance sheet. Then I will move to other sections. If we start with the balance sheet highlights, major highlights, we start with the total asset, we stand at QAR 61.8 billion by end of 2021, representing about 0.8% growth to year end 2020. For the total financing investments, we stand at QAR 420.6 billion by end of 2021 compared to QAR 16.4 billion by end of 2020, which is representing about 26.2% growth. Financing assets dropped or declined by almost 8.6% this year from QAR 30.6 billion by end of 2020 to be at QAR 37.0 billion by end of 2021, which mainly due to the major decline in our financing to the call -- by government sector by almost QAR 5.5 billion representing about 54% drop. This one has been offset or replaced with a good growth from our corporate asset side by about QAR 1.5 billion, representing about 8% growth, the same we have from personal financing activities. It grew by almost QAR 1 billion, representing about 6.6% growth compared to year ended 2020. And in terms of the total deposits, we stand at QAR 38.5 billion by end of 2021, representing about 6.3% growth compared to the end of '20. This mainly comes from the term deposits we had about QAR 2.4 billion growth compared to year end 2020, which representing about 11.4% growth in our term deposit side. Total equity stand at QAR 8.7 billion compared to QAR 8.3 billion by end of 2020, representing about 4.6% growth. If you move to the income statement side, we will start with financing activities or revenue from financing activities. We stand at QAR 1.8 billion by end of 2021 compared to QAR 1.8 billion, almost the same amount by end of 2020. We have slightly dropped about QAR 12 million just compared to the end of last year. Financing income from investing activities. We had about QAR 354 million by end of 2021 compared to QAR 395 million by end of 2020, representing about QAR 42 million drop in our investing activities or 10.6% growth. This is mainly due to the drop in our interbank rates on our placement with banks by about 58 basis points. We had good growth in our commission and fees income, is about 23.4% growth compared to the last year, mainly due to the new corporate fees and commissions were introduced during 2021 as well as we had a good growth in our capitalization about 16.6% growth in our capitalization income. This one, as you know, the usage of the account has been recovered during 2021 compared to the year 2020, which is almost like there is not any more -- cost income was local effect. FX income is at QAR 42 million by end of '21 compared to QAR 48 million by end of 2020, representing about QAR 6.2 million drop in our FX income. Share of our results from associates company stand at declined from QAR 43 million in 2020 to be about QAR 23 million in 2021. Total income is almost the same compared to last year. By end of 2020, total income at QAR 2.466 billion compared to QAR 2.450 billion by end of 2020, representing about 0.3% growth. Total operations or total cost of operations. We managed to reduce our cost of operations by almost 4% compared to the end of last year. We ended 2021 with almost QAR 328 million total operations, including administrative costs as well as depreciation cost of staff compared to QAR 341 million by end '21. Total provisions by end of 2021 grew by almost 4%. By last year, we had total provision, including financing, investing and Stage 1 and Stage 2 about QAR 397 million. This year, we grow to be at QAR 411 million, representing about 4% growth. Net profit by end of 2021, stands at QAR 1 billion, we achieved QAR 3 million compared to QAR 958 million by end of 2020, representing about 7% growth. If we move to give some flavor about our performance. If we start with asset quality. Asset quality, we had a decline of asset quality. We have increased our non-performing financing ratio from 1.6% in 2020, to be 2.6% in 2021. This 1% mainly due to 2 main reasons. One of them is the reduction of the decline of our financing assets by 8.6% in 2021 compared to year 2020. However, we have increased as well in our non-performing loans by almost like QAR 330 million during the year 2021. But on the other side, we enhanced our coverage ratio for Stage 3 from 71% by end of 2020 to be at 75% in 2021. We maintained as well our these 2 financing assets at 7.6 -- sorry at 8.5%. However, we enhanced as with the coverage ratio for the Stage 2 financing assets from 6.3% by end of 2020 to be at 7.6% by end of 2021. Overall coverage ratio for the financing volume has grown from 2%, 2.0% by end of 2020 to be at 3.2% by end of 2021, which represents almost like 100 basis points extra cost or cost of charges we provided for the provision during 2021. If we give some highlights about our major financial and regulatory ratios. If you start with the regulatory ratios, we managed, during 2021, to reduce our ready-to-deposit ratio from 104.6% by end of 2020 to be at 90.7% only in 2021, which is less than the maximum by the QCB's 100% as well as we enhanced our LCR ratio from 189.2% by end of 2020 to be at 223.7% by end of 2021, which is way above the minimum acquired by the QCB at 100%. On the capital adequacy side, we as well, we maintained our capital adequacy side, capital adequacy ratio will above the minimum required by QCB as the QCB is a minimum required by 12.5% as well if you added 1% minimum required for the ICAAP to the total minimum by the QCB is 10.5%. However, we stand at 16.7% by end of 2021, which represents about 3.2% above the minimum required by the QCB. Liquid asset ratio, we enhanced by end of 2021 to be at 37.8%, up from 31.2% by end of 2020. From the performance side, return on average equity stands at 15.6%. Return on average assets stand at 1.6%. We maintained -- we enhanced significantly our cost-to-income ratio to be down from 20.3% by end of '20 to be 18.8% by end of '21. And that was the major highlight about our performance during the year 2021. If you wish I can open it for the question or we can give to my colleague Dr. Mohammed Ghiyath to cover, first, the funding and rating side then we back to the question section. Doctor, if you want to continue?

Okay. Okay. For our funding overview, we -- as a bank, we are refunding, it's predominantly driven by customer deposits and equity investment accounts. And if we look at the QIIB funding split, we can see in 2021, 51% from our fund income from equity of investment account holder, 14% from our capital, 12% come from current account and due to bank is 16% and 6% for the Sukuk. If we now wanted to check this -- the 51% of the equity of investment account holder, we can see in the breakdown by sector, we can see 60% come from individuals and 31% come from government and semi-government and 7% by corporate and 2% come from nonbanking financial institutions. Growth in total customer deposits, we have QAR 8.5 billion, this is our equity of investment account holder and QAR 2 billion is in our current account. If we -- our credit rating, we are -- at Fitch, we are, A. We are -- Moody's, A2. And for Capital Intelligence, we are A. And if we -- as our bank is one of the third largest Islamic bank in Qatar, we are based in very fast growing market in the world. We have a strong brand name since 1991. We have second largest Islamic bank network in Qatar with 15 branches, and we have a strong capital position and asset quality, and we have our long-term issuer rating is A by Fitch and A2 by Moody's. Now if you have any questions.

[Operator Instructions] We have the first question from Janany Vamadeva from Arqaam Capital.

I have a few questions, if I may. Firstly on the cost of risk, it would be helpful if you could give some color on the increase in cost of risk we saw in Q4, especially compared with the NPL formation, it is quite limited during the last quarter. But still cost of risk was quite high on a quarterly basis. So wondering what's driving this even Stage 2 loans have not gone up during the quarter. Is it driven by the deferred book? Or are you seeing any stress in other sectors? So any color on that would be helpful.

Thank you, Janany. [indiscernible] to be at 100% that was the target. That was our strategy at the time. [indiscernible] want to come, our focus customer specified as not before. And you know the QCB regulation is very tough if that's not -- if 90 days the past dues immediately, you have to classify it as nonperforming. And according to the regulations, some of the -- some of our customers classify those 90 days, now it's become performing again, but the regulation as will require the bank to classify the customer as nonperforming if we hit 90 days and he being classified as nonperforming, you have to maintain as nonperforming until he did -- he full settles his outstanding. So due to these factors, however, those customers is recovered again during the quarter and to become normal, still we have to classify it as nonperforming in order to enhance our coverage ratio, we provided the big amount of provisions by Q4 to enhance our coverage ratio from 70% to be at 75%. Even if you remember, Q3 results, we are almost at 83%. That was the coverage ratio by end of Q3 2021. So due to those few customers, we are being asked to enhance or to provide additional provision for nonperforming to be at 75% by the end of '20.

And just to see that I got it right. So these accounts have been moved back to Stage 2? Or are they still in Stage 3?

As to the regulation, we have to keep those customers in -- until they settle the full liability, or minimum to be performing within 12 months continuously before we're able to reclassify it again to Stage 1 or Stage 2. So now those customers is classified as a Stage 3. So after 12 months of performing, we can request to QCB to reclassify them back to Stage 2 or Stage 1.

And would you be able to share what percentage of your loan book is still under deferral program?

We -- the QCB extended the program up to -- initially up to March 2022. Our total liabilities under this program is about QAR 1.6 billion, and we have about QAR 180 million under the [indiscernible] program.

I just have 1 more question, if I may. Would you be able to give us some color on the impact of rate hike how you see your ALM, because you have about 40% of your loan book in retail. So what are you penciling in for 2022 in terms of rates?

You know the good about the Islamic side or the way we do in our Islamic is affected profit fees. So right now, some of our portfolio, especially from the retail side is fixed at the rate when we granted. However, from the corporate side that is different is most of the corporate side is the evolving story. It's evolving every 3 months. So right now we -- during 2021, we maintained our net interest margin at 2.5%. It's slightly lower than 2020 by almost like 10 basis points. This one mainly driven by the drop in our average interest on our financing assets by 25% -- 25 basis points where we managed to reduce our cost of fund or cost of deposits by 10 basis points. So then it will cost about 10 basis points. So we expect definitely the rate hike during 2022 to impact the net interest margin at the bank. But on the other side, we have different plans to release our high cost of deposits with different lower cost deposits. From the asset side as well, I expect -- we expect as a bank if that was increased -- or there is an increase on this side, we expect the QCB will be going to follow the same and we're going to increase as well the lending grid on the Qatari Riyal side. So we expect to maintain our net interest margin at 2.5% by 2022 -- or during 2022.

There are currently no further questions. [Operator Instructions] We have a question from [indiscernible].

I just want to understand a little about the accounts that have been expired -- nonperforming. So basically, we're saying to reclassify them to Stage 1 or Stage 2. They have to pay consistently for 12 months or have to pay the whole outstanding liability. When you say a whole outstanding liability you make the whole norm or the amount that they will pass to you on.

Thank you, Mohammad, for your question. [indiscernible] that when an asset is referred as nonperforming, he should be especially from the retail side. He should be classified as nonperforming until he settled his full liability, whether this one doing 1 year, 2 years, whatever. So until he settle it fully, he should be classified as nonperforming. However, the bank has an option to request QCB to reconsider those customers and to reclassify them back to Stage 1 and Stage 2. But with the condition he is continuously paying for the last 12 months before we request to reclassify them back. So the bank has an option to request those. Usually, with those requests, when we have a large [indiscernible] with customers. But for the retail customers, we -- whenever the customers is classified as nonperforming, he is classified as nonperforming, and he settles his full liabilities. So some of the corporate customers. If we notice as a risk management in the bank, we notice those customers become really performing, again, we have a very good healthy conditions, we decided as a risk management -- as a management team to reclassify the impact to Stage 1 or Stage 2, where that we request the QCB to confirm our classification. Once we confirm it, then we can only classify it back to Stage 1 or Stage 2.

Okay. And usually, when this happens. So basically, first to confirm this. So the minimum after you reclassify an account as nonperforming it takes at least 12 months to reclassify them, right?

12 months to classify it back as performing. But to classify as nonperforming once he hit 90 days.

Yes, yes. I understand. Yes, yes, I understand this. So my follow-up is on when you reclassify them, for example, from nonperforming to Stage 1 or Stage 2, you usually release or basically you can hold them to the allowances as part of -- to increase your coverage ratio?

No, definitely. If -- you know like these decisions we needed by the end of year. As I mentioned, we have a strategy at the board level is to enhance our coverage ratio to be at almost 100%, ignoring without considering actually the collaterals. You know collateral is well considered. So we have up to 50% from the real estate and most of our customers, the corporate side is collateralized with real estate mortgage. So even without considering the mortgage or the real estate collateral, even the QCB, we provided 85% bank guarantee for the QCB customers. So without considering all of this still we are aiming to reach 100%. Go ahead. Sorry.

No, no. Okay, please go ahead.

No, no. What I want to continue that even those customers, their data set back as performing again, still we'll not release the vision has been provided before immediate uses of [indiscernible]. If you notice during our minimum last 5 years, will never reclassify any or reinvest any profit to the [indiscernible]. Usually, we use whatever provision has been recovered to enhance the coverage ratio or to go ahead with another customers.

Okay. And this is like, I mean, this is your decision, like, I mean, the auditor or the QCB cannot force you to release that, right? Because what I understand that you have a limit on how much you can provide for each customer if it's a Stage 2 or Stage 1, right? So what I was trying to understand, okay, you reclassify the customer from Stage 3 to Stage 2. Is that in your hand to keep the allowances or you might be -- if you have -- you reach a certain level, you cannot keep it from Stage 2 and you have to release the allowance?

As I mentioned, our management is very competent. So whenever we have this situation, we consider where we have to enhance either Stage 1 or Stage 2 coverage. As I mentioned, we enhanced the overall coverage from 2% to be 3.2% by end of 2021. For Stage 2, specifically, we enhanced it as well from 6.3% to be at 7.3% by end of 2021 as well. So definitely, as a bank, that is a management decision with the risk committee as well. We will review all our portfolio. And if we're going to, both additional provision for other customers. But to visit back to the P&L, again, to list the P&L, that was the rare case where it happened.

So I have another question on the outlook for the financing assets. So do you have sort of target for financing asset growth this year? And also expectation for the cost of best portfolio 2022.

Okay. First, for the financing assets, we are aiming, as I mentioned, despite the major drop in our financing assets relating to the government or public sector by QAR 5.5 billion, representing almost like 55% of the total assets, to that sector, which is the public sector. We achieved a good asset growth in corporate side as well as the personal banking side. If we didn't consider post -- if we didn't consider the government drop we had 7.5% growth. So we're anticipating to achieve between 5% to 7% growth, asset growth and financing assets by 2022. For the cost of fiscal addition provisions, we might require to provide this one is we are targeting, as I mentioned, to achieve 100%. So we're able to provide a additional provision by end of 2022, we're going to provide. However, this one will be based on what -- how much the percentage or how much the nonperforming loans by end of year.

We'll take now our next question from Shabbir Kagalwala from Al Rayan Investment.

I had a couple of questions. I had a question on the investment side. So we have seen that this year, you have added a lot of investments to your -- to the investment security, mainly on the debt side, predominantly in the state of Qatar Sukuk and fixed rate Sukuk. So I would like to know the outlook, given the increase in rate hikes, how do you see this portfolio changing? Do you plan to reduce some of the exposures or move to floating rate what's -- what will be the strategy there on the investment side, if you can help us understand more, please?

Do you want to take this question?

Yes. Yes. Regarding this Qatari -- the Qatari Sukuk, they're maturing during the year. And usually, at Qatar Central Bank they take in consideration the rate and everything. And for the dollar one, the dollar one is mainly we have it like [indiscernible] one and we have the main one, which we think we can do like good repo on it, and we can utilize it in somehow. So when the rate will move, we can easily like -- we work some of the U.S. dollar portfolio. So -- and we can reinvest it again. So I mean, this is where, I mean, we make sure our portfolio is very good and it has a very [indiscernible] . This is what I mean, our strategy.

And would you like to add more to the Sukuk side in 2022?

Yes, of course, if there's any good gains, good raisings and meet our customer's criteria, why not?

And currently, what is the yield on this portfolio on the Sukuk side?

The Qatari Riyal around, I think, around like 4% and the dollar one is around 3.5%.

Okay. And also I would like to know that this year, you've seen a good decline in the cost-to-income ratio. You've heard a lot of cost. What's the target for 2020? Are we seeing more cost savings? Or this is bottom or most of the cost-saving initiatives are complete, if you can help us understand?

In fact, we have really ambitious strategy or digital transformation where we excluded a good portion of it during 2021. But still, it is a good target we maintain for 2022. So definitely, we are aiming to reduce it further, if that's possible. But definitely, the level we have now is the second best in the Qatari market at the minimum. So we have a very good initiative during 2021. We have very good plans for 2022. We started some of the new products, enhancing our service. Delivery to our customers will be to introduced during 2022, which I believe it will enhance significantly as well our cost of income.

Right. And my last question is on the fee side. In the fourth quarter, we saw a big jump in fee income. You mentioned you had some cards and things like that. So were there any one-offs in this fee income?

Not any one-off. All of it is new organic growth. The big portion of it is mainly driven by 2 major enhancements we made, one of them for the corporate type of charges, we introduced some of the new types of charges. We enhanced some of the existing ones as well, which it had a good return on our income. The same for the cards operation, you know last year, almost like most of our card was local, where there's not any interchange or FX as well due to this one. However, during 2021, when the travel restriction has been removed, and the volume of the cards operations start to jump in again and to be within the normal trend, that's why we recovered our income during 2021, and we achieved a good income from card submissions.

[Operator Instructions] And there are currently no further questions in the queue.

Thank you, everyone.

Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.