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

Hello, and welcome to the Qatar International Islamic Bank Conference Call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome [ Shehan ] to begin the conference. [ Shehan ], over to you.

Thank you very much. Hello, everyone. I want to welcome you to Qatar International Islamic Bank's fourth quarter 2022 financial results conference call. On this call from the company's management, we have the bank's CFO, Hossam Khattab; and Dr. Mohammed Ghiyath, Head of Treasury and Investment. So as usual, we will conduct this conference with first [ batsman ] reviewing the company's results followed by a Q&A session. I will now turn the call over to Hossam. Please go ahead.

Good morning, everyone. Thank you for joining our call today. Today, definitely, we're going to have a brief view about year-end 2022 results. As you might be aware that we already released our Investor Relations for today. I was going to start today's presentation with QIIB snapshot. I will give you a brief overview about how we performed in general into 2022. Then I will go definitely into more details in the next slides. The first one for QIIB snapshot, I'm going to start with our financial snapshot. We ended 2022 with QAR 56.4 billion total assets, dropped from QAR 61.8 billion in 2021, representing about 8.7% Total financing dropped from 37.0 December 2021 to be 35.0 in 2022, representing about 5.4%. Total deposits dropped from QAR 38.6 billion end of 2021 to be QAR 36.7 billion in 2022, representing about 5% drop. I will give you a brief of why we have such kind of drop in total asset financing and deposits, basically, last year, both Q2, we had a discussion internally within the management and we view our financial positions and we did restructuring of our assets and the liabilities to definitely reduce the impact of Fed increase in our profitability and our earnings. That's why we decided at that time to start to reduce whenever we have opportunity, definitely the high yield or high paid deposits as we have as would at that time high payment from government side from Ministry of Finance, that's why our financing has been dropped, on the response of this one, we reduced our deposit as well by almost the same amount to maintain our earnings and our net interest margin at the high level as well to enhance our profitability, our ratios as well. That's why at that time, we took decision to go and to reduce our total assets and deposits at the same time. The next ratio we have about nonperforming ratio, slightly increased from 2.6% to be 2.8%. This is mainly driven by the drop in our financing assets by almost 5%. Net profit up from QAR 1,003 million last year to be QAR 1,075 million in 2022 year end. Earnings per share up from QAR 0.59 to be QAR 0.64 in 2022. Capital adequacy up from 16.7% to be 17.7%, which is one of the direct impact of what we did last year about restructuring of our financial position or balance sheet. Market capitalization as well is up from 13.8 by end of 2021 to be QAR 15.7 billion by end of 2022, representing about 40% up in our market capitalization. In terms of number of network corporate branches, we added 2 more branches to our network, mainly for corporate, one for SME and one for large corporate. This one has well enhanced our visibility for corporate customers and enhanced our fees and income from corporate side, corporate customer. In terms of our business segment, our business mainly driven by 3 major segments. The top one is the corporate banking. Then we have personal banking and third one is treasury and investments. Our shareholder structure is almost the same. We have about 17% owned by Qatar Investment Authority, 20% owned by GCC and other foreign nationals, and we have remaining about 63% owned by Qatari individuals and companies. If you move to the next slide, which is the business overview. The corporate banking or corporate financing is representing about 45% of our income. 39% of the total assets, followed by personal banking, representing about 34% of our total revenue, while they have about 25% of the total assets. Treasury and investments representing about 21% of the total revenue and their assets is about 35% of the total banking assets. If we move to the financial overview, we had between 2018 to 2022, we have compounded annual growth rate about 2.9%. Definitely, this was impacted by last year, which is 2022, dropped by 5%. However, we still maintain a good asset size. The contribution of our assets mainly comes from financing assets representing about 62% of the total bank assets followed by balances and investments with banks about 17%. We have about 14% from financial investments. The split of our financing book, usually towards about 4 pieces, one for corporate, one for personal or retail banking, one for government and one for real estate. 2022 restructuring of this one due to the repayment of government outstanding financing. So the contribution of the government dropped from 12% contribution of financing assets by end of 2021 to be only 2% by end of 2022, which impact the contribution of other segments, then we have a consumer financing drop from this year of the financing up from 39% to be 47% real estate contribution onto our financing assets as well, up from 19% to be 21%. Trade financing as well up from 16% to be 17%. If we move to the next slide, which is about asset quality. As I mentioned, we have slightly increased in our nonfinance and nonperforming assets from 2.6 to be 2.8 by end of 2022. This one mainly due to the significant drop of our financing asset by 5%, mainly from corporate, from government side. If we exclude the government drop in our financing assets, we ended up with about 6% growth in our financing book, excluding the drop in government business. This one definitely impacted our nonperforming ratio. However, we enhanced our coverage ratio to be up by almost like 94% of the total nonperforming assets, so over the last year, it was about 75% only. As well, we enhanced overall coverage ratio for the financing assets from 3.2% in December 2021 to be almost like 4.1% by end of 2022, representing about 100 basis point extra coverage ratio for all of our financing assets. About the operational efficiency and profitability ratios, if you noticed, we already have about 86% of our core banking income comes from financing and investing activities. The good we did lift year, we enhanced our noncore income like fees and commissions, FX transactions, the contribution up from 12% last year to be 14% this year. This one mainly driven by increase in the fees and commission income, mainly from new corporate fees we offered last year as well from [indiscernible] income. In addition, definitely through the credit card, we had about a 50% increase in our [indiscernible] 2022. The return on our average assets at 1.8, almost the same compared to last year. We had about 14.2% return on our average equity. Our cost-to-income ratio with continued enhancement is down from 18.8% by end of 2021 to be 18.7% by end of 2022. If you move to the compliance or regulatory ratios as well, we enhanced our capital adequacy ratio, it is up from 16.7% by end of 2021 to be 17.7% in 2022, representing about 100 basis points extra. This one, as I mentioned, due to the restructuring we did of our financial position in addition to the good provisions we provided for financing assets and investment associated as well this year, which enhanced our capital adequacy. It's good to mention as well, we maintained our LCR at 141.5% where the minimum required by the QCB is 100%. The same for NSFR, we maintained at 112 by end of year, where the minimum as well is 100%. Leverage ratio at [ 15.1% ], where the minimum is 10%. Liquidity ratio at 123%, the minimum was 100% as well. [ Credit ] to deposit ratio we maintained to be way below the required, which is maximum 100%, we maintained at 98%. Dividend payout ratio this year post to the AGM subject definitely [indiscernible] as a cash dividend from the total paid-up capital, which represents about 56% of our net profit dividend yield, dividend payout ratio is about 56%. Now with that covering all financial aspects of the today's presentation, we're going to move to the funding overview, will be presented by my colleague, Dr. Mohammed Ghiyath. Over to you, doctor.

Okay. Thank you, Hossam. For funding overview, QIIB funding is predominantly driven by customer deposit and equity of investment account holders and is backed by the bank owned capital. If we check the QIIB funding split, 51% it's come from equity of investment account holders, 16% from the capital, 12% is due to banks and 14% current account and 5% Sukuk. This is a funding split for our book. For the account equity of investment account holders at end of 2022, we can see 64% coming from individuals, 7% from corporate and 29% come from government and semi government. That's surely like our deposits are sticky and all the time, we can see same numbers almost. Growth in total customer deposits, we can see that equity of investment account holder are QAR 7.8 billion. And this is current account, 7.8; and equity of investment account holder around QAR 28.9 billion. For rating, we are rated by Fitch rating by A minus outlook, stable by Moody's, we are A2 and stable, and by Capital Intelligence A and outlook stable. We are the third largest Islamic bank in Qatar. We are based in the fast-growing market in the world. We have a strong brand since 1991. And we are second largest banking network in Qatar with 17 branches. And we have a strong capital position and asset quality, strong government support from Qatar Investment Authority as one of the bank's largest shareholder. We have strong organic growth and long-term issue rating we have, as I said, A minus by Fitch and A2 by Moody's. Thank you very much. Any questions?

[Operator Instructions] Your first question comes from the line of [indiscernible] from Royal Investments.

Just wanted to check, in terms of your loan growth, where do you see the loan growth coming in in 2023 because what we have seen is the government portion of the loan has significantly come off in 2022, so what will be the focus area for the bank in 2023? The second question is on the provisioning. The Stage 3 provisioning has now reached 90%. So what is the target for 2023 for the Stage 3 provisioning and the overall provisioning for the bank and the cost of risk you see?

Thank you for your questions. I am going to start with the first one financing growth mentioned in 2023. As you mentioned, we have a good portion of our financing repaid in 2022 relating to the government where we was considering one of part of our portfolio comes from financing. And we are not seeing any visibility or any potential this one will come up very soon during 2023. So our main focus right now, as we already reached the bottom line from government side, we expect a good growth from the corporate side. We've seen some potential good new customers coming now. The same for retail, we are preparing for good campaigns and good new products we're going to offer to our retail customers as well. So the main potential growth in 2023 will be from the corporate and retail customers. We expect about 4% to 5% growth in asset size comes mainly from the corporate and retail. For provisions, as with in 2022 enhanced our stage 3 coverage ratio from 75%, almost to be 94% by end of year. Our usual target is it's about 100%. This was a strategy last 3 years, and we worked on it this year, and we enhanced it to be 94%. Definitely, our target to be 100%, which about more extra only 50 million, we need to provide with 100% where we believe of our coverage ratio now at for overall financing assets, about 4.1% is well enough compared to the market. So we do not expect to do any additional you can say enhancement or support for stage 1 and 2 unless we have a drop in the quality. Otherwise, we are fine with the current provision of our current coverage of our overall financing assets.

Is there any guidance on the cost of risk for 2023 because we had seen elevated cost of risk for 2021 and 2022, and it's trending down. So will the trend continue to be lower? Or do you see any surprises given the increase in the interest rates?

Yes. If you notice like 3, 4 years back towards about our cost of risk is about 30 to 35 basis points. That is the usual our cost of risk. 2022, we increased almost like 60 basis points. 2021 is almost like 100 basis points. this year it's 86 basis point, that's cost of risk. So we expect this year to maintain it at the same level, which is before the COVID. So we anticipate it to be between 3% to 5% maximum to be 50 basis points as a cost of risk, consider that we covered the target has been set in the last few years.

Right. And my final question is on the operating expenditure. So we have seen that operating expenditure has been slightly higher in 2022. And the cost-to-income ratio has been fairly stable. So where do you see the cost-to-income ratio for 2023, given you are launching these new products and acquiring new customers?

Okay. Great. Last few since COVID started back to 2020, our strategy as a bank is to convert most of our services and the products to be able to serve our customers through each channel mainly corporate and Internet banking, last year as well, we introduced active teller machines, where the customers can do deposit of their checks to collect over the ATM machines. We enhanced a lot of machines as well to accept corporate customers' deposits. So our strategy is to try to as much as we can to move all our service and products for within [indiscernible] customers to be over the digital channels. Last year, as well, we introduced most of our new financing now for the retail is going through the mobile banking. Even we schedule whatever it through mobile banking. So we expect to continue enhancing our cost-to-income ratio going to 2023, 2024. We had only like 2.5% only increase in our overall cost compared to 2021, which is well accepted in this environment. We expect definitely we will try 2022 and the years after as well to maintain at a very low edge compared to the -- and we focusing definitely to increase our fees and commission income to increase our other core banking income to enhance overall cost-to-income ratio.

[Operator Instructions] There are no further questions at this time. I would like to turn the call back over to Hossam.

I have a question, Hossam. Just quickly, the expected cost of risk for 2023. It's a nice drop if you say it's going to be between 30 to 50 basis points, which would imply 2023 bottom line should have double-digit growth. Is that accurate? Or...

Yes. Like it is definitely this one, it will be based on the expected growth in 2023. So then we will try as well to maintain the bottom line growth usually between definitely will not reach double-digit growth between 7% to 8%, 9%, that will be 2023. But yes, we are going to enhance our coverage ratio, we are going to enhance whatever other provisions required for investments, we're going to provide as well. So at the end of day, we need to enhance our overall provisions for the bank.

Okay. Excellent. And I noticed that are you guys exiting the equities prop book?

Come again, sorry.

Your investment book, equities have become insignificant. Is that part of your strategy to like not play around in the stock market?

No, no, no. Like we have last year, we had a plan to enter the stock exchange and to do a small portfolio between QAR 100 million to QAR 200 million. But due to the volatility and instability in the market, that's why we didn't activate it during last year. This you might consider. But our [indiscernible] capital market, usually will go for the fixed income type of assets investments. Our small portion of our portfolio usually goes with stock exchange with equities.

There is one further question from [indiscernible] from Royal Investments.

This is [ Akbar ] from Royal Investments. Just regarding the guidance that you've given in terms of balance sheet growth in 2023. Is it fair to assume that this would largely be sort of second half loaded where you expect the first half to be quieter and activity to pick up in the second half? Or is that not a correct assumption?

We definitely cannot drop first half or second half and usually, our team is working [indiscernible] to achieve the target goals. We see some potential good new customers coming in now and we might end Q1 even was a good asset growth. Because as I mentioned, we take the hit last year. So we dropped significantly by 5%, which was intended last year to ensure that 2022 will have this kind of recovery of our operations, mainly from corporate and retail customers. So we expect this year, Q1, Q3 definitely will have a good income because like Q3 usually there is no much growth expected in much new business in Q4. So we mainly focus on Q1 and Q2 before even the summer start by Q3.

There are no further questions at this time. I would like to turn the call back over to Hossam for closing remarks.

Thank you, everyone. Thank you for hosting our call today, and we are open and available any time you want to have any further questions, inquiries about the bank and our performance. I appreciate you attending our call today. Thank you, everyone.

This concludes today's conference call. You may now disconnect.