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

Hello, and welcome to Qatar International Islamic Bank Conference Call. Please note that this call is being recorded. [Operator Instructions] Now I would like to hand the call over to Phibion. You may begin.

Thank you. Good afternoon, and thank you all for joining us for today's FY 2024 call for Qatar International Islamic Bank. My name is Phibion. I'm from QNB Financial Services. And on today's call, from the management team of Qatar International Islamic Bank, we have Hossam Khattab, who is the Chief Financial Officer. We have also Dr. Mohammed Ghiyath Sheikhah, the Head of Treasury and Investments. They will go over the numbers first. And then after they are finished, we have a Q&A session. Please, over to you. Go ahead, Hossam.

Thank you. Good afternoon, ladies and gentlemen. It's my pleasure today to welcome you all to our last presentation for 2024. As we close the year ended 31st December 2024, I am proud to share that QIIB has delivered another year of strong financial performance and operational performance as well despite a dynamic global and domestic economic landscape. We have continued to reinforce our position as one of the Qatar's leading Islamic banks. Last year was marked by shifts in global monetary policy, including the Federal Reserve rate cutting cycle, which began in September 2024, followed by the Qatar Central Bank lending rates cut almost by 115 basis points, started from 6.25% to be at 5.10% by end. Even in this evolving environment, QIIB has remained agile and resilient, capitalizing on the market dynamics, while maintaining robust profitability and financial strength. Our commitment to achieve a sustainable growth, prudent risk management, and digital transformation has enabled us to achieve our key 5 measures. First is robust profitability. Our net profit grew by 8.2% year-over-year to be at QAR 1.260 billion by end of 2024, demonstrating a strong earnings momentum, supported by almost 15.2% year-over-year growth in total income. We had a very solid financing asset growth with the total facility expanded by 7.7% to be QAR 39.3 billion by end of 2024. A strong and diversified funding base with 6.3% growth in our customer deposits, reaching QAR 41.4 billion in addition to the successful issuance of $750 million sustainable sukuk from a financial institution within Qatar, reflecting an investor confidence in our fund and strong position in Qatar banking system. We continue as well to enhance our capital position with the capital adequacy improved to 19.3%, supported by the new additional Tier 1 sukuk with $300 million, positioning us as well for the future expansion, with stable asset quality backed by a prudent risk management as well as diversifying funding book. Today, along with my colleague, Mr. Mahmood AlAhmed, Head of Treasury and Investment; Dr. Mohammed Sheikhah, we are looking forward to provide you with a deeper insight into our financial performance, funding strategy and the growth outlook. If we move to the Page 5 of our presentation today, which is summarizing the performance of 2024. If we start with the financial snapshot. As you can see, we ended the year with total assets QAR 59.9 billion. Total financing assets to QAR 39.3 billion, representing 7.7% growth. NPL ratio 3.3%. Customer deposits, QAR 41.4 billion, representing 6.3% growth. Net profit, QAR 1.260 billion, representing 8.2% growth. Earnings per share, QAR 0.77. Capital adequacy Basel III at 19.3%. Total market capitalization, QAR 16.5 billion as of December 31, 2024. Our capital structure remains the same with Qatar Investment Authority the largest shareholder with 17% ownership. As well, we maintain a very stable business segment with Corporate Banking, Personal Banking, Treasury and Investment. If we move to Page 6, you can see the split of our business segment. Treasury and Investment representing about 31% of the banking total assets, while we contribute to about 24% of the total revenue. Personal banking represents about 26% of the banking assets, while we contribute 23% of the total revenue. Corporate banking is the majority with 53% of the total banking revenue and the share of the assets is about 43%. If you move to Page 8, assets and financing. You can see how is the bank managed to win the balance sheet over 2024, as you can see, even with a drop of 2.7% of the total banking assets, which was a strategic action over 2024 to enhance our asset position as well as our profit margins, which will enable us as well to enhance our capital position. Even with the drop in total assets by 2.7%, we managed to enhance our -- to increase our financing assets, which is a core, by 7.7%. This is mainly driven by a good increase in our large corporate financing assets by 8%, public sector assets by almost double over 2024, while the retail business grew by 4%. As you can see down, the asset composition by type. Over 2024, we managed as well to reduce the composition of -- the share of the investment and balances with financial institutions from 20% by end of 2023 to be only 14% in 2024. This as well gave us a good base to increase our receivables and financing assets from 59% of 2023 total assets to be at 66% by end of 2024. They remain almost the same, financing investments, almost 12%, and you can see cash and balances with 6%. As well, our financing book split by industry, you can see we managed as well to reduce the concentration and the exposure to the real estate segment from 20% to be only 17% by end of 2024. As well, we enhanced our public sector to 4% of the total financing assets, up from 2% by end of 2023. If we move to Page 9, which is asset quality. Even our nonperforming assets up from 2.9% to 3.3% by end of 2024. We're still within, might be even less than the market average. On the other hand, we enhanced our coverage ratio to be at 100% for Stage 3 financing assets. Overall financing assets up -- coverage ratio is up from 4.4% by end of 2023 to be at 5% by end of 2024. This is a specific provision. If we added accumulated as well the risk reserve, which represents about 2.5% of the total financing assets, we ended up with a coverage ratio of 7.3% of the total financing assets by end of 2024. Next slide on Page 10, it shows how the bank is maintaining a very good profitability position and operating efficiency over 2024, where we maintain our cost-to-income ratio at 18.8%, representing the second best efficiency in the local market as well locally and globally -- regionally with GCC banks compared to the other GCC banks as well. We maintain our core banking income, which is investing and financing activities, to be at 89% of the total revenues. Fees and income share up from 8% of the total income last year to be at 9% in 2024. As well as you can see, the return on our average equity up to be 13.2% from 12.5% by end of 2023, as well as the return on average assets up from 2% by end of 2023 to be at 2.1% in 2024. As mentioned as well, our total income up by QAR 463 million over 2024 compared to 2023, representing about 15.2% growth over the last year. Page 11. As well, we maintain a very solid capital position. We continue to maintain a very solid capital position over 2024 by refinancing our additional Tier 1, which is matured in November 2024, but a new one has been issued in October 2024 with a very successful transaction over all metrics. As you can see as well, our capital structure is mainly driven by Tier 1 capital, representing about 94% of the total capital position. We enhanced as well our CET1 ratio from 11.87% by 2023 to be at 14.02%, representing almost like 2.15% up from last year. The total capital as well is up from 17% by 2023 to be at 19.27% by end of 2024, representing almost 434 basis points over the minimum required by the QCB. It's good to mention as well, by December 2024, the QCB classified QIIB as one of the DSIB banks, domestically systematically important banks, within Qatar, which has added additional 0.5% requirement to our capital base. Even with this one, we are well above the QCB minimum requirement. Page 12 is summarizing the financial performance of year ended 2024 with total asset dropped by 2.7%. As we mentioned, this one was a strategic action done by QIIB management to enhance margins, profit margins as well as the capital position, which enabled us to enhance our financing asset growth by 7.7% without adding any additional burden or additional funding costs. The liquid asset ratio is down by 18.5%, as I mentioned, due to the balances and investments with financial institutions, down almost like [ 31% ] over 2024. Customer deposits up by 6.3%, supported by the new product we offered to our customers last year, which is a good saving account with prices, which has achieved almost like very close to QAR 600 million outstanding balance by end of 2024. Total income, as we mentioned, up by 15.2%; net profit up by 8.2%. Now I'm going to leave the floor to my colleagues from Treasury & Investments to give you a presentation over the funding overview for last year. Floor is yours.

Thank you, Hossam. The funding overview, QIIB funding is predominantly driven by customer deposit and quasi-equity and is backed by the bank's own capital. If we check the QIIB funding split as of 31st of December 2024, you can see 58% comes from quasi-equity, 16% is from the capital, 9% due to banks and 5% sukuk, and 10% is customer current account and 2% other liabilities. The quasi-equity breakdown by sector; 63% comes from individuals, 8% comes from corporate, 28% comes from government and semi-government, and 1% comes from nonbanking financial institutions. Growth in total customer deposits, the quasi-equity is around QAR 35 billion. And for the current account is QAR 6.2 billion. This is just to give you overall picture of funding. And for the credit rating, as Hossam stated, Fitch rating, we are A and outlook stable; and we are A2 by Moody's and outlook stable; and Capital Intelligence A+ and outlook is stable. Our bank is one of the most efficient bank in Qatar. You saw that in the cost-to-income ratio. Our bank is based in one of the fast-growing market in the world. We have very strong brand name since 1991. We are second largest Islamic banking network in Qatar with 17 branches and 1 digital branch. We have strong capital position and asset quality, and we have strong government support with Qatar Investment Authority as one of the bank's largest shareholders. We have strong organic growth, and we proved this through the year. And long-term issuer rating of A by Fitch and A2 by Moody's. Thank you very much. Any questions?

[Operator Instructions] And your first question comes from the line of Abhinav Sinha with Lesha Bank.

Could you give some guidance on loan growth NIM and the NPL for 2025?

Thank you. For the NIM, basically, over last year, we continue to enhance our NIM. Even we started Q1 with a drop of our NIM by almost like 40% compared to the year before. Over following quarters, basically Q2, Q3, we enhanced our NIM. Overall, year-to-year it's dropped by 10%, but it's almost like 50 bps up from Q1. This is mainly driven by a good enhancement of our profit margins, gross profit margins from 610 basis points by Q3 to be 625 basis points by end of 2024, mainly driven by the repricing of our retail portfolio over the last quarter. We expected last year to maintain as well a good NIM, considering that most of our deposits has been repriced now at the highest rate. We expect to get some cuts on the funding cost over next year, while we're going to maintain our return on our assets almost at least at the first half of 2025. So we expect to maintain a good NIM very close to 2.80% by end of 2025. For the nonperforming ratio, as we highlighted, we're already up from 2.9% by end of 2023 to be 3.3% by end of 2024. We expect this one to be a little down by Q1. Some of our nonperforming loans, as you might be aware that QCB policy regulations require that even if the customer has become performing over last year, we cannot reclassify underperforming unless we get a clear confirmation from the QCB, which we did over the last quarter as well. We expect some of other additional approvals over this month will enable us to reclassify some of our nonperforming customers to be performing again. This one, we expect it to have a good impact on our nonperforming to be very close to 3 percentage by end of Q1. On the other hand, as I mentioned, we will continue to enhance our provisions over 2024. We provided almost like 380 additional provisions to Stage 1, 2 and 3, representing this one only representing over 35% of the total -- actually of the net profit by end of 2024. We expect it to maintain our coverage ratio at the same position over 2025.

Okay. And on the loan growth, please?

Yes, sorry?

On the loan growth, like any outlook on the loan growth?

Yes, yes, for sure. We expect to -- actually, we targeted to achieve, for large corporate, a growth rate of 4% to 5%. For public sector, we anticipated to achieve from 8% to 10% growth. Retail is about 6%. So the overall growth we are targeting next year is about 6%, considering the 3 major segments.

And your next question is from [ Wei Chao from Al Rayan Bank Group ].

This is Shabbir Kagalwala from Al Rayan Investment. I have a couple of questions. We have seen is that in 2024, we have seen a huge jump in your fee income and particularly in Q4. I would like to know if there is any one-off there or it's like a routine business, and from which sources of fees is -- if you can break down for us, please?

Thank you, Shabbir, for your question. Basically, as you know that the business or to get a good revenue or good income or gross income from direct financing and as well investment is very hard nowadays considering the competition. So we're now focusing -- or a group of our strategy is focusing on enhancing our fees and service income, mainly from corporate side, as you can understand as well from the retail business is very limited due to the QCB regulations. So we focused last year on our corporate banking service by providing an additional some of the services to our corporate clients, mainly from the SME as well. This one as well supported by a new corporate credit card services offered to our corporate clients, enabling us to enhance our income from cards operation. So we expect as well to have a good return as well by more investment or more digital transformation of our channels, which is enabling our customers to get their service very quick and, I can say, as we expect within a few hours, which is supporting our base for the new services we offer to our customers.

Right. So going forward, we can expect more growth to come in on the fee income side for 2025? Or much of the efforts have already been done?

A lot of has been done. As I mentioned, we continue to enhance our fees and products from corporate banking. This year as well, we continue to focus on insurance services with corporate customers as well, especially the SME. So we expect to maintain good growth as well over 2025.

Right. And we have seen a decline in your foreign currency income. So is it because of the cap which QCB has implemented? Or you're seeing less transactions? Or what's the reason and the cause of the decline?

Those are QCB new limitations of the exchange rate.

Right. And my final question is on the investment securities side. We have seen a reduction in the investment book this year. Over the quarters, it was down, but in the Q4, we have seen a slight pickup. So going forward, what do you think is the outlook on the investment book side? Do you expect the book to increase? And what yield are you currently getting on the investment securities that mature?

Yes. Good one as well. Over the last quarter, as you correctly mentioned that we let go some of the investments, which was some of the QCB treasury bills, considering that our funding and liquidity position was very strong. So we enhanced our overall profit margins by reducing our position for treasury and investment with the QCB to some other investment opportunities. That was what has been done over 2024. Looking forward as well, we're looking to increase our investment book by a good investment within GCC countries. Considering now there are some upgrades of Saudi Arabia, Oman as well has been upgraded. So it gives us a room or a good position to enhance our investment position. And Mahmood is already available, he can also give you some insight on that.

Okay. Thank you for the question. Actually, with regard to the investment in general, as Hossam said, basically, what has been reduced was the treasury bills where we have found actually good opportunities in the past year when the interest rate was high in general environment. So for short-term investments, this is what we have done. However, we have noticed to what extent that the growth rate was on the loan book where we had to actually make the proper cash management, where we have replaced those short-term investments with better yielding opportunities on the loan side. So that was the main impact. However, in general, we are indeed expecting good growth [ inshallah ] this year. On the investment book, we have a new strategy that we are trying to implement and the room is even bigger nowadays. So [ inshallah ], we have started already building the book. Hopefully, in the first quarter, we can actually use or fully implement the target that we had. Of course, we will always keep some room for the new issuances coming and we will have to always maintain our profit rate exposure overall.

Right. And what sort of target profit rate do you look into when you're looking at investments in terms of yield on the book for the new investments? And what's the current yield on the book?

Yes. In terms of -- we are talking about the weighted average yield, it's about 4.7%. But at the same time, we are always actually having kind of a neutral position in terms of profit rate risk. So like we are trying to maintain a margin, a good margin like between 1% to 1.25% overall. That is the margin. However, keep in mind that we are a conservative bank in terms of risk appetite. So the average quality of our portfolio is not so -- you can count on that as well.

Right. And to add on to what Mr. Hossam said about the limits about going to GCC, do you have the QCB limits to go outside of Qatar? Because generally, banks in Qatar are limited to not invest and they are subject to certain limits. So does that mean that the limits are -- you have enhanced limits now, particularly after the Tier 1 issuance?

The limit is always there, actually. However, because of what has been mentioned by also Mr. Hossam earlier in terms of the upgrade happened within the GCC. So while we have actually a position there, and there was some kind of replacement of what we say, lower-yielding sukuk, that could add real value to our new position or replaced position, especially when currently we are actually trying to always maintain the neutral position I just mentioned. In terms of the limits by QCB, of course, limit is the same. However, QCB is probably in control of having some kind of changes over here or there. However, there is nothing formal or explicit has been mentioned. So this is not something we are considering as part of our strategy to implement, except for those upgrades, which has left some good room for us, especially when our book is, let me say, quite small compared to some larger banks around us. So the impact is supposed to be something decent.

There are no further questions. I would now like to turn the call back over to the speakers for any closing remarks.

Thank you. And it seems that we no longer have questions from the floor. It brings us to the end of our call today. I would like to thank the management team for taking the time to update the market, and I would like to thank all of you for joining us. Please join us again for future calls. Thank you. Good afternoon.

That concludes today's conference call. Thank you all for joining. You may now disconnect.