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 Mr. Roy Thomas to begin the conference. Roy, over to you.

Thanks, Bhavesh. Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Qatar International Islamic Bank's Fourth Quarter and Year-end 2023 Financial Results Conference Call. On this call from Qatar International Islamic Bank, we have Hossam Khattab, the Chief Financial Officer; and Mahmood ALAhmed, the Head of Treasury and Investments. We will conduct this conference call with management first reviewing the company's results followed by Q&A. I will turn the call now over to Hossam Khattab. Go ahead, Hossam.

Good afternoon, everyone. Thank you for joining our call today. At this call, we're going to give you overview about QIIB before months by end of 2023 compared to the ended 2022. I am going to start my presentation today, as usual, to give you a high-level overview about QIIB position by end of 2023. We'll start with a snapshot of the performance. QIIB ended 2023 with almost total assets at QAR 61.6 billion, representing about 9.3% growth compared to 2022. Total financing assets by end of 2023 up as well by 4.2%, standing at QAR 36.5 billion compared to year ended 2022. Total deposits -- customer deposits go up to QAR 38.9 billion representing about 2.3% growth compared to year ended 2022. Net profit up to QAR 1.165 billion, representing about 8.3% growth compared to the year ended 2022. Net operating income up as well from QAR 1.792 billion by end of 2022 to be at QAR 1.974 billion by end of 2023, representing about 10.1% growth year-over-year. Earning per share up to QAR 0.70 compared to QAR 0.64 by end of 2022. Our capital adequacy stands at 17%. Nonperforming ratio is slightly up from 2.8% by end of 2022 to be at 2.9% by end of 2023. Our rating position, Fitch A-Minus with a positive outlook, Moody's A2 with a stable outlook. Shareholder structure by end of 2023 as well consist of 17%, the single largest shareholder by QIA. Then we have about 21% contribution of the shareholders from GCC and foreign nations. 62%, representing Qatari companies and individuals. Our business segment as usual is interesting in one. The largest is the corporate banking, then treasury and investment and personal banking. If we move to the business overview, by end of 2023, December, as we mentioned, corporate financing representing the largest exposure of the total banking assets by 37% and the contribution of the share of the revenue by end of '23 as well is 45% followed by the treasury and investment with share of 38% of the total banking assets and the revenue share is about 25%. Then we have personal banking assets representing about 25% and the contribution of the share of the revenues by 30%. We have about 18 branches by end of 2023, including 1 fully digital branch, we just opened last quarter of 2023, in addition to 84 fully function ATMs. That is the business overview. If we move to the financial performance, by end of 2023, our asset composition by type, [ 59 ] almost representing the total financing assets. That is a major contribution of our financing -- of our asset book followed by receivables and balance with banks. We're representing 20% of the total banking assets with about 13% representing the financial investment. Our financial investment is mainly in the type instruments, basically Qatar government sukuk in addition to other sovereigns sukuk, and small size of the fund FIs is in Qatar and other regional ones. The financing assets split by industry. We have about 45% the contribution of the share of the consumer lending with retail portfolio, followed by 20% real estate exposure, 23% for trading and other services. We have a small share of public or government financing assets by 2%. Asset quality. QIIB maintained its asset quality over 2023. By end of '22, our asset nonperforming ratio actually was about 2.8%. We ended 2023 with slight increase to be at 2.9% only. While we maintained the coverage ratio at a good position, the overall coverage ratio at almost 155% including all stages provision. If we split our asset quality by stages, the Stage 1 is still representing the majority, almost more than 87% is Stage 1, 11% for Stage 2, 2.9% for stage 3. We enhanced it as well as the overall coverage ratio for the total financing asset to be 4.3% up from 4.1% by end of 2022. If we move to the profitability and operating efficiency, by end of 2023 as well the QIIB maintained to enhance or actually enhanced the return on our average assets to be up from 1.8% by 2022 to be 2% by end of 2023. The same we enhanced our return on our average equity to be up from 12.1% by end of 2022 to be at 12.5% by end of 2023. We still as well maintain or continue enhancing our efficiency or cost-to-income ratio by reducing this one further from 18.7% by end of 2022 to be at 17.9% by end of 2023, which is then one of the most and the top one region and as well local within Qatar. The split of our operating income, more than 95% of our income comes from the core banking operations, basically financing and investing activities, where we ended 2023 with 2% to 3% total income up compared to 2022. In terms of the regulatory issues and capitalization and other regulatory, by end of 2023 as well our capital adequacy dropped to be 17% from 17.7% by end of 2022, which is mainly due to the increase in our total assets by, as we mentioned, 9.3%. And by end of 2023, we have unexpected large payment of one of our public active customers which we immediately -- by almost QAR 2.7 billion, which we immediately replaced it, we invested with as a short term definitely with local banks. Definitely this one carried higher risk weight asset, and that's why we have this drop. We expect to end the Q1 2024, with capital adequacy at 17.7% again. The LCR by end of year as well at 259% and NSFR at 108%. As well, we maintained a very good loan-to-deposit ratio at 93%, while the maximum for sure is 100%. If we're going to summarize the performance of QIIB by end of 2023. The bank achieved total asset growth by 9.3%. And semi financing assets or financing portfolio up by 4.2%, liquid asset ratio up by 20%. The customer deposit up by 2.6% total revenues up by 33.6%, net operating income up by 10%, net profit up by 8.3%. That was my section today, I'm going to move it now to my colleague, Mahmood, to give you overview about our funding position.

Thank you, Hossam. Actually, I will just guide you through the funding position for QIIB. As on continuous basis, QIIB is enjoying actually stable funding structure over the time. So we can also start. We have no significant changes over the years and similar -- and this year actually of 2023 end of the year was not an exception. So we are still actually enjoying 63% of our funding structure to be come from customer fixed deposits for accounts and saving account CASA while we have actually 15% is our capital and 13% is due to banks or from other bank institutions. On general actually, QIIB looks at expanding branch network and corporate relationship to steadily grow deposit base to be supported further with corporate e-banking services. QIIB is also increasingly becoming a preferred banking partner for individuals as well as corporations and financial institutions looking for sharia-compliant institution which is our main or target customers. And the process of [indiscernible] and Investor Relations function to broaden investor base, develop investor relationship. We can see on the segregation of the actually funding structure from the 15% CASA, we can see that the main source is coming actually from individuals, which is one of the most stable sources, and actually fixing the diversification value that QIIB is enjoying with 61% out of that stake and then followed by 29% going for government and semi-government sector and 8% for corporate, whilst 2% is from nonbanking FI. We can see also on the structure or segregation between the current accounts and fixed and savings accounts. We cannot just that -- the current account has flattish look just because this is normal investor behavior whenever the interest rate is actually on the higher portion profit rate. So we see actually more of [indiscernible] about actually the profit rate towards paying them, so that's why we have seen normal slippage on the current accounts. However, there is, of course, more than the amount actually went only through from current to savings. To fixed deposits we have seen actually larger amounts. Like we have seen 2.4% -- around QAR 2.4 billion moving or increment in the savings accounts and term deposits while there is QAR 1.5 billion only decrease in the current accounts. Overall, the whole funding has increased. We can move to the next page which is the credit ratings. Hossam has pointed to that earlier. We have actually no changes on Moody's and Capital Intelligence. So we have A2 by Moody's with a stable outlook and A-Plus with a stable outlook by Capital Intelligence. While Fitch we are now on positive outlook and A-Minus rated. Going to the next slide. Actually, QIIB is one of the most efficient bank in Qatar in one of the fastest growing markets in the world which is the State of Qatar economy and it has strong brand name, which started since 1991 and operating in a city and stable market. And we can see that it is also the second largest Islamic banking network in Qatar with 17 branches and 1 digital -- fully digitalized branch. QIIB also has a strong capital position and asset quality. It has also strong government support with QIA as one of the largest shareholders. Also, we have a strong organic growth over the time and long-term issuer rating. Of course, we just have mentioned that by Fitch A-Minus and A2 by Moody's. That's it from my side. Back to you, Hossam.

Thank you, Mahmood. We can open the floor for any further questions.

[Operator Instructions] Our first question comes from [ Mark Converse ] from TFI.

I just refer to the Slide 9 of your investor presentation on the asset quality. I just have 2 questions. One is, how much does the coverage of your Stage 3 loans improve if you add back collateral. That's the first question. And then the second question is, I just wondered about this off-balance sheet exposure subject to ECL in the Stage 3 loan. There looks to be quite a large figure there. And I just wondered if you could elaborate on that.

So what was the second one?

Yes. On slide -- on Page 9 of your presentation, it shows off-balance sheet exposure subject to ECL and on the stage 3 section is a large figure. So I just wanted you to potentially elaborate on what that might be.

For the first one, if we -- you're asking about the stage 2 if we're going to consider the collateral. So basically, definitely, we provided this 87% inclusive of any additional collateral. Definitely, there's a collateral -- eligible collateral according to our policy is a relative collateral cash deposit or shares. So if you're going to consider as a collateral, we will be at minimum 130%. For the off-balance sheet exposure for Stage 3, off-balance sheet basically for whenever we're going to provide any provisions for Stage 1 or 2 and 3, we don't have a split between the off-balance sheet and on-balance sheet basically. If we have any customer being classified as nonperforming, we deal with it as a one exposure and we provide the full provision, including even the off-balance sheet portion.

But it says that it's not covered, the QAR 6 billion in Stage 3 off-balance sheet exposures subject to ECL.

Yes.

I mean that's -- I mean I'm just questioning what might that be? Is it like exposure to like loans to real estate? Is it exposure...?

No, no. Basically I'm sure this might be a mistake actually. This is an incorrect number. This is not...

Yes, that's what I'm thinking, like something is not right. So I don't know.

At this point it's -- basically you can refer to the financials. This one is a totally incorrect number.

[Operator Instructions] Our next question comes from the line of Hussein Mahfouz from Arqaam Capital.

I have 2 questions. So the first one is, can you please provide some color on margins and cost of risk outlook for next year? And the second question is, can you explain the stage to movement sequentially, please?

Okay. For the phase 1 about basically, by end of 2023, we continue to enhance our margins. Basically, we enhanced our return on average assets up from 4.3% by end of 2023 -- 2022 honestly, to be at 5.18% by end of 2023, which represents almost like 160 basis point up from the income side to revenue side. On the other hand, as always due to the pressure on the deposits as well on the funding, we as well -- the cost of funding is up from almost 1.6 by end of 2022 to be at 2.90 by end of 2023 which will represent about 150 basis points. So the overall net interest margin enhances from 260 to 290 basis point enhancement. For the cost of risk, we continue to expand our coverage ratio, as you can see in our enhanced provisions by 2023. Our provision is almost like 20% in 2022 and we also as well to achieve coverage for basically up to not less than 95% by end of 2024.

Can hear you hear me?

Yes.

Yes, I want to ask about if you could provide guidance on the NIM for next year and cost of risk for 2024.

Okay for cost of risk, if we start, as I mentioned, last year we're almost at 160 basis points. This year, as I mentioned, we increased by almost 20%. So the cost of risk for 2023 is up to 116 basis points. We expect it to be at 100 basis points as well. As I mentioned, we believe the management is very conservative, and we believe in adding additional provisions to enhance our coverage ratio to be at more than 95% by end of 2024. For the net interest margin, as I mentioned, this year we had 290, which is considered one of the best in the market. We are willing as well we're working on maintaining this one over 2024 by enhancing our margins, although the retail portfolio for QIIB today is [indiscernible] side of it. It takes almost like 2 to 3 years to be fully reclassified or recycled to the new rate. We almost done with 50% of the portfolio [indiscernible]. We aim to continue repricing our retail portfolio. We should enhance our -- by end of [indiscernible] return on the retail portfolio to be almost 6% to [indiscernible] basis point right now. During 2023, we enhanced our return on our asset in retail portfolio from 4% [indiscernible] to be at 550 by end of 2023. So assuming retail to enhance further to be at 6%, 600 basis points by end of 2024 which we're going to maintain and support the margins since the retail portfolio, as I mentioned earlier, is about 45% of the total finance.

Our next question comes from the line of Lee Beswick from QNB.

Just going back to what Mark has mentioned earlier, on Page 9, that 6127938, that's an incorrect number?

Yes, 100%.

Is it the exposure that is incorrect? Or is it the ECL which is incorrect?

No. No, basically, the ECL, it should be 0 because, as I mentioned, there is no ECL for our Stage 3 off-balance sheet because we consider all as within the on-balance sheet. So there is no any provision or ECL we provided because as it's classified in Stage 3, this become totally -- is on-balance sheet and we consider the full provisions have to be [indiscernible]. No ECL concept for the ECL for the Stage 3. The exposure itself, definitely it is incorrect number and I'm going to check this one. I'm going to update into the presentation. I'm going to issue the updated one on the website as well.

Okay. Because yes -- that was my question because the exposure number in your presentation matches the exposure number in your accounts. So does that mean your accounts are wrong?

No, no, no. It's not an account. I believe how it...

I'm looking at it right now. It's on Page 30 of the accounts, those numbers match. So does that mean the accounts are wrong. Page 30, note 4a. This is the exact same number.

Yes, this one is something is definitely wrong. This is not a correct number.

So the accounts are wrong.

Yes. This is a draft for sure. I am going to review this one again.

There appears to be no further questions at this time. I'll now hand the call back to Mr. Roy Thomas.

No further questions, we'd like to thank Hossam Khattab and Mahmood ALAhmed for the results update and answering all the queries. And we look forward to speaking to you all for the first quarter of 2024 results. Thank you.

Thank you.

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