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

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

Thank you. Hello, everyone. I want to welcome you to Qatar International Islamic Bank's Second Quarter 2024 Financial Results Conference Call. So on this call from management, we have the bank's CFO, Hossam Khattab; and Dr. Mohammed Ghiyath, Head of Treasury and Investments. 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 Hossam. Please go ahead.

Good afternoon. Thank you, everyone, for joining our call today for half year results of 2024. I'm going to start my presentation today with, first of all, the financial highlights or financial snapshot for half year results and [ which were already shared today ], I believe, morning. The total assets by end of Q2 or half year 2024 dropped to be QAR 59.3 billion, representing about 3.8% drop. Total financing assets stand at QAR 38.6 billion, representing about 5.6% growth from year-end 2023. Customer deposit as well is up by 3.8%, stand at QAR 40.4 billion, compared to year-end December 2023. Net profit for Q2 -- or half year 2024 stand at QAR 655 million compared with QAR 615 million by end of first half of 2023, representing about 6.5% growth. Quarter-over-quarter, it's about 6.9% growth. Earnings per share for end of first half is about QAR 0.38. Capital adequacy stand at 18.8%, up from 17.0% by end of December 2023. As well, in the management, in the last Board meeting, we decided to do interim cash dividend by 23%. It's about QAR 0.23 for each share. Market capitalization by end of as well June 2024 stand with QAR 15.3 billion, representing about the sixth market capitalization into the all listed entities under Qatar Exchange. Our network is about 17 branches. In addition to 1 digital branch, out of 17 branches, we have 3 branches fully dedicated for corporate customers. As well, we have about 80 ATMs across all Qatar. Our shareholder structure [ stand almost the same ]. Our major shareholder is Qatar Investment Authority, QIA, with almost 17% share. About 22%, owned by GCC and foreign nations' investors; the rest, which is 61%, owned by Qatari companies and individuals. We own our operations, as usual, through the 3 major business segments, basically corporate banking, personal banking, treasury and investments. For the treasury and investments, the share of the banking assets is about 25%, where they contribute about 20% of the total net revenue -- that's for personal banking. For treasury and investments, representing about 32% of the total banking assets -- and their contribution into the net revenue is about 26%. Last is corporate banking, where they contribute about 43% of the total banking assets. And their contribution into the income is about 54%. If we move to [ more of that and to the ] financials and the results of -- by end of Q2 or first half of 2024, you will get -- the assets composition by type is about 65% so -- is receivables and balances, financial balance, with financing activities, basically credit financing portfolio. This one, as we mentioned, is about 7.6%, up from year ended December 2023. As well, we have about 17% representing balances and investments with banks; about 12% financial investments. The majority of our financial investment is investment in sukuk, which is almost sovereigns and FIs sukuk. The split of our financing book by industry. The majority of our financing book is consumer lending, which represents about 46%, more or less stable compared to year ended 2023. As well, we managed to reduce shares of the real estate financing assets from 20% to be at 17% on the first half of 2024. On the other side, we -- as well, we enhanced or we have a good increase in our public financing assets, almost like 4x what it was, from 1% to be at 6% by end of first half of 2024. As I mentioned, a good contribution of our growth in financing assets by end of first half 2024, mainly from public sector. It is up almost like 12x [indiscernible] [ in the half year 2023 ], yes. For asset quality. So the bank maintained as well very strong asset quality, which at -- 87% of the financing assets [ is in ] stage 1; only 9.5% in stage 2; 3.3% only in stage 3, which is much lower than the average market. Even, we enhanced our as well coverage ratio to be at 87% by end of first half. Overall coverage ratio for the financing assets is about 4.3%, which is almost the same compared to year ended 2023. That was financing assets. The main increase or the main -- the split of our nonperforming ratio between corporate and retail, almost like 40% of nonperforming asset is retail and private sector customers; 60% representing corporate and SME customers. The bank as well continued to enhance its operation efficiency in Q2 or first half, where we stand at 20% cost-to-income ratio, considered the second best efficiency in the local market. As well, we maintained to -- maintain our return on our average assets at 2.2%; and return on our average equity about 13.9%, which as well considered one of the top in the local market. Majority of our finance -- majority of our income or revenues comes from core banking operations. More than 90% of our income comes from investing and financing [ activities ]. [indiscernible], I think, we see as well; and other regulatory ratios. The bank [ has always enhanced ] its -- the bank -- the capital adequacy by end of Q2, to stand at 18.8%. [ This one ] posted a dividend declared last week -- or actually early this week. So for CET1, it is up from almost 11.9% by end of 2023, to be at 13.6% by end of first half 2024, representing about 1.7 plus. The overall capital adequacy, up from 17%, to be at 18.8%, representing as well 1.7% (sic) [ 1.7 percentage points ] up from year ended 2023. But as well, for -- the bank as well maintain a very solid NSFR at 119. [ G-SIB ] liquidity ratio stand at 133. Loan-to-deposit ratio, one of the best in the market at only 91%. So to summarize the performance of Q2 or half year 2024. Total financing assets, up by 5.6% compared to year-end 2024 (sic) [ 2023 ]; customer deposit, up by 3.8%. On the other side, lending side, is total assets is down by 3.8%; as clarified, this one mainly due to the drop in our due to undue from banks by almost 2.7 billion in Q2, which was managed to reduce the reliance on the funding by banks or financial solutions as well as investments from financial institutions. Net income grow, by end of first half, by 20.6% compared to the first half of 2023. Net profit, as mentioned, 6.5% up from half year of 2023. That was the overall for financial performance. Now we're going to move to funding overview, presented by colleague, Dr. Mohammed Ghiyath.

Yes. Thank you, Hossam. QIIB funding is driven by customer deposits and equity of investment account holders, is backed by the bank's own capital. QIIB funding split, it's 57% come from equity of investment account holders. 16% come from capital, and 11% from customer current accounts, 11% due to banks and 3% sukuk and 2% other liabilities. If we check -- if you compared between half of the year 2024 and to -- as well on the end of December 2023, we don't see there's a lot of changes, major changes, in the QIIB funding split, but if you, we go now to breakdown of the equity of investment account holders, we can see like 60% come from individuals. 29% come from government and semi-government, and 8% from corporate and 1% from nonbanking financial institutions. The growth in the total customer deposits. We can see that QAR 34 billion came from the equity of investment account holders. And QAR 6.4 billion come from current accounts. That's -- give you overall about funding overview of our bank. As you may know, our credit rating, we are -- as of July '24, we are A by Fitch and A2 by Moody's and A+ by Capital Intelligence. We are one of the most efficient bank in Qatar, and we are based in very growing markets. We have a very strong brand since 1991. We have very strong capital position and assets quality. Now the -- if you have any questions, please. It's yours now. It's your floor.

[Operator Instructions] Our first question comes from Rob Skepper from Ashmore.

Can we just talk a little bit more about asset quality? So I guess my first question is just we saw an increase again in the NPL ratio. Can you just give a bit more color on what's driving that?

Thank you for your questions. And as I mentioned, asset quality, yes, it's moved a little up from 2.9% to be at 3.3% by end of Q2 or first half, this one mainly driven by some of our stage 2 customers have been classified to stage 3; [ is the ] QCB regulations [ in the ] international [indiscernible] that any customer who passed 15 -- or 90 days should be moved to the stage 3, which we're monitoring those customers. And some of them was -- passed the 90 days. That's why we classified into stage 3. On the other side, we have a good amount of recovery as well in Q2, but at the end of the day, the ratio is at 3.3%. The main one is -- so the customers have been classified to stage 3 in Q1 and Q2 2024; 55%, almost, private and retail customers; where almost 45% -- 44% is corporate and SME customers. The majority of the customers being classified as stage 3 is private and retail customer.

Yes. Got it, okay. And then -- yes. And then, I guess, just looking at the coverage. So you've maintained the coverage of stage 3 at an almost identical level to year-end. And so the -- if we look at stage 2, there's quite a big drop in coverage from like 11.1% to 9.5% through the first half. Like I know those trends often come as a bit worrying for us. Is there anything you can say, just a bit more color, to give us some comfort that that's prudent enough?

Yes. As I mentioned as well, stage 2 has dropped from [ close -- 10.2 ] by end of 2023. Now it stand at [ 8.5% ] of the total financing assets, so we have about [ 0.7% ] drop of our stage 2 customers. On the other side, as I mentioned, those customers was almost like -- have good amount of provisions worth maintaining. That's why we moved to the stage 3. That was a main reason for dropping in the coverage ratio for stage 2 from 11.1% to be at 9.5%, to maintain as well the coverage ratio for stage 3 at almost 87%. And in addition, the coverage ratio [indiscernible] in first half, representing almost like [ 50 ]. So the cost of risk was maintained -- we maintained the cost of risk at good position. Almost like [ 58 bps ] was provided in first half.

Yes. And would you -- are you expecting that trend [ at least ] to continue through the rest of 2024, i.e., like a migration a bit to stage 2 [ but ] to stage 3? Like how is it looking in third quarter?

Yes. Definitely, we have very good [indiscernible] system in place. We do regular [ hits ] and follow-ups [ to maintain ] our customers at good quality. So we was working with our customers to ensure that, whenever we need to adjust the cash flow, [indiscernible] to match the new cash flow in order to support our customers, but for your point, we hope to [ not have been no ], I mean, customers moved from stage 2 to stage 3 by end of 2024. And definitely [ we're working this month ] to maintain our stage 2 and stage 3 [ at positions ] which was at the same positions for the last few years.

Our next question comes from Abhinav Sinha from Lesha Bank.

So a couple of questions from my end. So one is on the loan growth, like, given that we already have visibility till July. So how do you see it for the full year '24? And the second question is on the cost-to-income ratio. So I see that it has inched up from 17% to 20%, so for the full year, should it be -- should it normalize in the second half? Or will we expect it to remain at 20% levels?

Thank you for the questions. For the first one, about the asset growth: As we highlighted in first call this year as well last call 2023, our strategy now is we'll be more focused on the public sector customers, as well to focus more on good quality of private or large corporate customers, which we achieved in first half. We managed to enhance our public sector financing assets to be -- as a percentage of the total financing assets, from 1% by end of 2023, to be at 6%, up almost like by [ 2.2 billion ] in first half. We are targeting to maintain a good -- as well good development in our strategy to maintain as well a good asset growth in -- from public sector, as well as a selective quality, private and corporate customers. We are targeting to achieve between 5% to 6% overall assets -- financing asset growth by end of 2024. So far, we achieved -- we are on track. We achieved, by end of June, about 5.6%, which was matching with our budget and our strategy. For the other question, about the cost efficiency. We did some initiatives in 2024. Like we were -- the sponsoring of Qatar football federation and some other marketing and sponsoring activities in first half, which it has an impact on our overall expenses. So we expect then the -- our target to maintain the ratio [indiscernible]. That was the target since long time back. With further enhancement of our [ channels ] and strategic initiatives to do more digital transformation, we expect to maintain the ratio at a good position, almost less than 20%. [indiscernible]?

Yes, I think, very clear.

Thank you.

Our next question comes from [ Johaid Parvesh ] from Al Rayan Investments.

This is Shabbir Kagalwala from Al Rayan Investment. I had a couple of questions just -- and a follow-up on the operating expenses. You mentioned that you had sponsored some events, so how much of the increase in the SG&A in the first half pertaining to those sponsorship. And how much of it would be to enhance the digitalization initiatives which you have taken? And for the rest of the year, how much more is you're planning to spend? That's my first question, on the operating expense. On the -- sorry. You can answer. And then I'll ask my next...

[indiscernible] -- yes, go ahead.

You can ask -- you can answer the question. And then I can ask more questions.

Okay. For the operation efficiency one, as I mentioned, we did some good initiatives and sponsoring some activities in Q1 and Q2, which it led to some increase in our operation expenses. This one as well comes with the support. And we did [ following on ]. Last, in last few years, we did a lot of digital transformation. And good digital strategy, we achieved, where it has as well impact on our operating expenses. [ That is about ] from the support and -- license, maintenance license and all of this. So that's one of the main reason for our operating expenses increase, which we expect to be maintained over the rest of 2024. That was first question. I believe you ask if...

So you don't expect more expenses to come towards -- in second half.

No. Basically -- you know that's -- the initiatives and whatever we do is already budgeted for, so we don't have one items -- or one sudden items. So all what we are doing is well planned and already budgeted for. So the performance was -- actually is following our budget and our strategy, so we don't have any sudden or unexpected move in any directions or any new [ support selling ] or any new technology we're going to buy which is not planned before. So the trend, even based on our budget, is still with the enhanced -- with the increase or development in our operating expenses, still we are less than the budget by almost like 6%. So even with that current development, still we are within or less than, inside our budget for 2024.

All right. And just a question on the fee income. What you've seen is that, for the first half, there's been a very strong increase in the fee income space. How much of this would be recurring fee income change? And how much will be one-offs, if any?

Some of it is mainly one-offs, like the one relating to the financing transaction business which is one-off, but as well, on the other side, we maintain -- or continue to enhance our sustainable business from fees income, especially from banking services. Like we introduced -- we usually introduce every quarter some few services, especially for the corporate side, which it has a good return on our fees and services income. As well, we enhanced our [indiscernible] operations. That as well has a good impact on our net fees and income.

So we can safely conclude the majority of the growth which has come is from like recurring fee income growth.

Recurring, but the major one comes from -- as I mentioned, from some one-offs [indiscernible]. These come from the financing transaction.

One-off, okay, all right, okay. Right, right. And you mentioned about that 60% of your NPL has come from the corporate side, so which sectors are you seeing issues in terms of NPL formations currently?

Issue -- like most of the system is -- mainly one comes from contracting real estate. That was the trend of most of Qatari banks. It's not only for QIIB particularly then. So within the system. And we -- in fact, with whatever is going again, so -- and that is the position right now. I hope, by end of 2024, to be -- to enhance it [ and so on ].

All right. And we have seen a reduction in your cost of risk. You earlier had a kind of 1%, 1.1% cost of risk, which has now come to around 65 bps, so what's the guidance for the cost of risk for the remainder of the year? Do you think that the provision levels will be lower? Or you think you will improve your provisions or -- and increase the stage 3 coverage to at least make it 100%.

Yes, good question. If you remember, we did -- 2 years back, when we had the same conversation, we had that was -- at that point of time our coverage ratio at almost like 50 -- between [ 50% ] [indiscernible]. Now we reach almost even plus [ 90% ]. Now we're at [ 87% ]. So the amount -- [ we go by disclosure. Those disclosure ] we provided before is not because we want to provide, because we need to -- the structure of the bank and approach is to enhance the stage 3 coverage ratio to be plus 90%. We are targeting [indiscernible] 100%, but definitely, this one, we're managing very carefully. So the growth of our cost of risk in first half is not kind of cut. It's only to match with our strategy. So we reached the level where we are [ set ] right now, the 87%, considered one of the best coverage ratio in the market. This one definitely, as you know, is not taken into consideration all collaterals, like real estate collateral, shares, even cash [indiscernible]. So this one is you direct [ position ] of the full exposures without taking into consideration any guarantees or collaterals in our funds. So the level we maintain right now is very solid, very -- sustains our strategy as well.

All right. And my final question is on the investment book. This quarter, what we have seen is that there has been a reduction in the investment book and also a corresponding reduction in the investment income, so what's the strategy of the bank in terms of the investment? Or is it like it's a bit in the quarter? Or you are sequentially reducing the investment book.

Basically we, in Q1 and Q2, as well, to -- managed the growth of our financing assets. You know the investment, dealing with banks, due from banks or even some of the government bonds and sukuk. The margins or profit margin is very little. That's why we manage -- we choose to [ reduce ] our balances with financial institutions and to re-bulk or to invest this one with our financing assets rather than get additional deposits with expensive costs. So it shows [ another ] strategic move from financial investments to financing assets...

So just a move from there. And on your own sukuk, the Tier 1 sukuk, which is maturing -- sorry. Your line is breaking, Hossam.

Yes, yes, but we -- I mean, do we have other ones? Because I mean, honestly -- do you have another -- I mean because...

Yes. You can't hear me well, Shabbir...

Yes. It's okay. It's better now. It was just breaking, so I -- my -- I'll ask about the same, on the investment side. You have a Tier 1 sukuk maturing in end of this year, so what's the strategy over there? Are you thinking of refinancing it or just repaying back the sukuk?

As well it's good one. Right now we're updating our sukuk transaction documentation. We -- definitely the decision should be taken [indiscernible], but definitely we're considering to refinance this one before [ the matches ].

Next question comes from [ Mikhail Gojain from CBFS ].

My last got covered, but just one -- the -- lastly, which was following in terms of your financing, which you mentioned costly deposits, you can say, investment going into your financing assets. Just in relation with that, what we have seen is that overall in the banking sector, especially in the second quarter, in fact among the Islamic [indiscernible], you guys have done better in terms of yields, which have been reflecting in better spreads. So I mean just an understanding whether do we see that trend to continue, I mean, one of the best in terms of second quarter. So do you see that trend to continue in terms of overall spreads likely? And what is your view in terms of September? In case -- of course, we're seeing [indiscernible]. How you see that going forward for the bank in terms of stress.

Okay. So it's, as I mentioned, the split from financing assets is -- literally is underway right now due to limited potential new projects, so -- and that's why we're very carefully considering any new financing transactions, to maintain our net interest margin or profit margin at a good position, as well to -- as well, as you know, the funding cost is not that cheap, so there is a pressure, for sure, on our cost of fund. It is almost like up by 60 basis points compared to year ended 2023, almost like 65 bps up from June 2023, yes, so in order to maintain our good margins, we're considering the good-yield financing assets. That's why, as I mentioned, we shift some of our assets from financial investments and financing -- FI specifically, financial institutions, to be under financing assets and mainly in public sector. As you're aware, that public sector or the government business is [indiscernible], there was [ no capital charge ] for this one, so that's supporting us with capital adequacy and at the same time enhancing our yield or our profit margins. This one is our strategy for 2024. We definitely [ want it to increase, one ], on monthly basis. And if we need to change, to adjust our structure, definitely we will take in actions, needed actions, to maintain our net interest margin [indiscernible] right now.

Okay. And about how you foresee in terms of interest rate scenario moving down, from September, say 25 basis point cut; how you foresee that to pan out in the fourth quarter, maybe first quarter of 2025.

Still it's not yet -- every day, you hear the fund projections, different estimates about where the rates cut will be in September, [ in November ]. There's no clear visibility on this one right now, but in both cases, we not expect to have that major impact on our profitability on our -- beyond in -- during 2024; this one very simply because of our financing assets. Some of it is almost like 60% of our financing asset is a revolving one. And it takes at least 3 to 6 months to revolve. As well -- for customer deposits as well, this is not an immediate impact. It will take at least 1 year's to revolve or to update our deposit costs with a new outlook or the new rates in the market. So the net bottom to the -- our P&L for 2024, I am not -- I believe it will not be -- might be starting from Q1 2025 to Q2 2025.

[indiscernible] question comes from Rob Skepper from Ashmore.

Yes. Just a quick follow-up there, so -- and kind of pulling all that together. And we see that NIMs sequentially improved Q2 versus Q1. What's -- do you have any guidance for the second half?

Sorry. I cannot not hear you well.

On NIMs. Do you have any guidance for the second half?

Our NIM. As I mentioned, it is at, yes, good position. We're talking about like 255 basis points, which is almost the same for Q1; a little down from end of 2023, which shows the peak for us, by almost like 35 basis points. So now most of our deposits have been almost like totally replaced with a new deposit matching with the market [ price ], so we do not expect to have further pressure on our NIM by end of 2024. We maintain to -- we expect to maintain the same NIMs over 2024, yes. [ If there's ] any drop in the rates within the market, Fed or even the QCB, we're not expecting to have immediate impact on our NIM, as we -- in the -- in 2024. At this point, at minimum, it will be 6 months to start to have -- or to impact our NIM or our [ profit strategy ].

As of right now we don't have any more questions. I'd now like to hand back over to the management for the final remarks.

So if there are no more questions, we can wrap up this call. Thank you, everyone, for joining the call. Thank you, Hossam and Dr. Mohammed. And we'll pick this up again next quarter.

Thank you very much.

Thank you...

[indiscernible] so much for joining in today's call. Have a wonderful day.

Bye-bye.