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

Hello and welcome to the Qatar International Islamic Bank Conference Call. Please note that this call is being recorded. I would now like to hand the call over to our moderator, Bobby Sarkar. Please go ahead.

Thank you, Dustin. Hi, hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to Qatar International Islamic's First Quarter 2025 Financial Results Conference Call. So on this call, from management, we have Hossam Khattab, who is the CFO; and Dr. Mohammed Ghiyath, who is the Head of Treasury and Investments. So as usual, we will conduct this call with management first reviewing the company's results, followed by a Q&A session. I would now like to turn the call over to Hossam. Hossam, please go ahead.

Thank you, Shahan (sic) [ Saugata ]. Good morning, good afternoon, everyone. And thank you for joining our first call for 2025. Today, as [ Shahan ] mentioned, I'm going -- walk you through this presentation with my colleague, Dr. Mohammed Ghiyath; and Mr. Mahmoud al-Ahmad, [ Head of Treasury and Investments ]. We're going to start my presentation today with providing you with a high-level financial highlights over the Q1 performance compared to year-end as well as Q1 2024. As you can see our presentation. Our total assets by end of Q1 2025 are up or stand at QAR 59.3 billion, representing about 1.1% decline or decrease compared to year-end. On the other hand, we managed to enhance our financing assets to be up by 1.4% compared to the year ended December 2024, with QAR 39.9 billion. Our customer deposits are up as well from QAR 41.4 billion, to be at QAR 42.3 billion by end of Q1 2025. As well, our earnings per share is up to QAR 0.24 for Q1 2025 compared to QAR 0.22 for Q1 2024. On the other hand, our net profit is up to QAR 356 million for the 3 months ended March 2025 compared to the 3 months of 2024, which represents about 6.3% up. As well, we managed to reduce our NPL to be at 2.9% only compared to 3.3% by end of 2024, which -- way below the market average. Our capital adequacy, we as well enhanced it or improved, to be at 19.9%, up from 19.3% by end of 2024; the bank maintaining a very good market capitalization at QAR 15.4 billion by end of Q1 2025, representing the [ second ] market -- largest market capitalization in the Qatar exchange. We're maintaining a very solid and strong rating from Fitch at A, Moody's A2, both with a stable outlook. Our shareholder structure, this remains the same, with QIA the single largest shareholder with 17%, 20% owned by GCC and foreign nations shareholders. Qatari companies and individuals owns about 63%. We're running our business with usual and dynamic, the same major business segments, which is corporate banking, personal banking, treasury and investments. If we split our assets and revenue by segment, the largest contribution comes from corporate banking, which represents about 40% of the total assets of the bank by end of Q1 2025, while the contribution of the revenue from corporate banking assets is about 51% of the total revenues. We have as well -- the second is treasury and investments with about 29% of the total banking assets. The share of the revenues is about 21%. Personal banking is about 27% of the total assets. The share of the revenues is about 28%. Corporate banking mainly is driven by 3 major subsegment, is -- which is large corporate, government and semi-government segment, SME segment. We have 3 branches fully dedicated to serve our corporate customers. By end of 2024, our corporate banking team relocated to our new building in [ Msheireb area ], which is widely recognized as the new hub of [ the ] business in the city. Our personal banking are running the operation through our 14 branches and 1 digital branch. 1 of the -- well, 6 of the branches is within the biggest [ shopping malls ] [indiscernible] 7 days a week; 2 shifts, morning and evening. And that is a high level about our business position. If we move to give you more dive into our balance sheet performance or highlights for the Q1 2024 (sic) [ 2025 ]: as well, QIIB maintaining a very solid asset supported by high quality of financing assets by end of Q1, representing about 67% of the total banking assets. And the contribution of the share of the investments is about 12%, with very as well top-notch investment grade of investments, basically mainly in sukuk assets, with [ sovereign sukuk ] assets. As well, the share of the investment or balances with banks is about 14%, consistent with end of 2024. And the split of our financing assets by industry or segment, as you can see. And we're maintaining a very good, solid consumer business, with 45% of the total financing assets. We maintain as well the real estate contribution at same level of last year, which is at 18%. We managed to enhance or to grow our government or public sector business from 4% by end of 2024 to be at 7% by end of March 2025. And the asset quality, one of the major improvement of Q1 2025, where we managed to -- reduced our nonperforming ratio from 3.3% to be at only 2.9%. On the other hand, as well, we continued to enhance our coverage ratio. We improved our coverage ratio for stage 3 from almost like 100% by end of Q -- by end of year 2024 to be 106% for first quarter of 2025. Overall coverage ratio for financing assets, it is very solid at 5%. And off balance sheet as well is at 1.5%. If we continue to give you an overview about our profitability and operating efficiency. In Q1 as well, the bank, I mean, continued to deliver a very outstanding performance with 6.3% growth in terms of the net profit and 7.4% net operating income up from Q1 2024. As you can see as well, our return on average assets is up from 2.1% to be 2.4% by end of Q1 2025. Our return on average equity as well is up from 13.2% to be at 14.9% by the end of Q1 2025. We managed as well to enhance our efficiency to be down from 19.3% from -- by Q1 2024, to be at 19.1% only in Q1 2025. We have as well very good contribution from fees and charges income at 8% of the total bank's income or revenue. From the compliance and regulatory perspective as well, the bank is -- holds a very solid asset -- capital position, where we enhanced our capital, the adequacy, to be at 19.9%, up from 19.2% and -- by end of 2024, which represents about at minimum 5% or 500 basis point above all thresholds or minimum required at CET1 total capital, even Tier 1 plus capital conversation (sic) [ conservation ] buffer. That is capital adequacy. In terms of the LCR, by end of Q1 is [ 500-plus ]. LCR dollar is [ 300-plus ]; NFSR (sic) [ NSFR ] at 127%; LDR, loan to deposit, at only 88%, which is much lower than the maximum rate by the QCB's at 100%. And as well, we maintain a very solid [ net open ] position or dollars [ net open ] position at only 11%. If we can summarize the performance of Q1 2025; in summary, that despite the decline in our total assets by 1.1% compared to the year ended 2024, we managed to enhance our financing asset book by -- to be up by 1.1 -- 1.4%, supported by a good increase in our as well deposits to be at -- by 2.2% compared to the end at 2024; total income, as I highlighted before, a 1.9% growth. We ended Q1 2025 with QAR 837 million compared to QAR 822 million in Q1 2024, net operating income up by 7.4% compared to the first quarter of 2024. I will leave the floor now to my colleague, Dr. Ghiyath, to give you an overview about our funding and liquidity position.

Yes. Thank you, Hossam. Our funding overview. Our QIIB funding is predominantly driven by customer deposits and quasi-equity and is backed by the bank-owned capital. QIIB has leveraged its expanding branch network and corporate relationship to steadily grow its deposit base, to be supported further with corporate e-banking services. QIIB is -- maintain the second largest retail market shares in local Islamic bank at 12%. QIIB funding split for the quarter 1 2025. 60% comes from quasi-equity and 16% is from the capital, 11% from customer current account and 6% due-to-banks. And we have 5% from sukuk. The quasi-equity breakdown by sectors. 64% come from individuals. And 27% come from government and semi-government. And 8% come from corporate and 1% come from nonbanking financial institutions. For the growth in total deposit, we saw like 35 billion -- QAR 35.6 billion is from quasi-equity. And QAR 6.6 billion is from the current account. This is the overview of our funding book. Credit rating, as Hossam mentioned: Fitch, we are A and stable outlook. And for Moody's, we are A2 and stable outlook. And Capital Intelligence, we're A+, outlook stable. We are one of the most efficient bank in the -- in Qatar. We have strong brand name since 1991. We are the second largest Islamic banking network in Qatar, with 17 branches and 1 digital branch. And we have very strong capital position and asset quality. Thank you very much. I conclude my presentation. Any questions?

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

Yes. I had one question. I can see an increase of like 11% in your net interest income, if I do like your -- if I do the rough calculation. So what was driving that? And second thing is -- so your financing book expanded by 1.5% in 1Q, so shall we expect a similar rate for the remaining quarters? Because I remember you had said that for the full year you target a mid-single-digit loan book growth. So my 2 questions on that.

Thank you very much for your question. As you correctly mentioned, we have a good increase in our net financing income by 11 million, which is about 7.4% compared to the Q1 2024, this one mainly driven by a good increase in our financing assets by 1.5%, but the main driver of this good increase in our net operating income is the drop or the decline in our funding cost. We managed in Q1 to lower our cost of fund by almost like 56 -- 36 basis points compared to Q1 2024, which is -- enhanced our overall net operating income by about 11 million, but on the other hand, we maintained our return on our average asset at [ 5.9% ], which is almost the same return -- or average return in Q1 2024. And second question, about expected growth. We are targeting -- as I mentioned in last year as well, presentation, we expect to grow, I mean, 2025 assets between 4% to 5%. That is our target, so which means we are on the track. We achieved by end of Q1 about 1.5%, so if we continue the same average, we are targeting to be at between 5% to 6%, which is consistent with our budget and forecasting. And that's same for the deposits. The good to highlight about the deposits, one of the main driver of growth -- good funding [ calls ] that we introduced last year, one of the very good, I mean, new products, new saving account, which is called Joud account, this new saving account mainly for the retail one, which depending on offering our customers -- 141 winners over the year. We have prizes monthly, quarterly and annually. We manage by offering this new product to bring in more than 4,000 new accounts, with very low cost basis. That, it did a good return on our total cost of fund for last year as well for Q1 2025.

Okay. So just one follow-up. So on the NIM, shall we expect a stable NIM versus last year? Or given that your cost of fund has lowered, can it expand further?

Giving the current market volatility and uncertainty -- like nobody can predict what will be the Fed cuts over the next few months. Definitely we are trying to maintain our NIM at the same level, which is about 2.9%. If you can compare it with Q1 as well 2024, it will be almost like 40 bps up, compared to Q1 2024. I'm not expecting to maintain at the same level. As I highlighted in our last quarter in 2024, we expect to have NIM cuts by between 10 to 15 basis point over 2025, giving that there was 4 times or 4 cuts expected. Nowadays, giving the uncertainty in the local and international markets, we expect only like 2 cuts more. How this one will -- going to impact our cost of funding as well as the pricing of our financing assets is -- cannot predict right now, but we are targeting to maintain a very solid NIM. And that same level might be [ sustained to ] [indiscernible] Fed cut [ all over ].

[Operator Instructions] And our next question comes from the line of [indiscernible] from [ CBFS ].

Well, my question actually is pertaining to your ECL charges. What we have seen is -- your stage 3, we have seen a reversal in your first quarter, while stage 1, which normally you charge lower, have seen an increase. So I mean, can we see this kind of a trend, given that loan impact are also reduced, going forward...

I cannot [ get ] your questions very clearly. Can you raise your voice? Or to make it loud. So I can understand what kind of question -- what is your question.

Yes. So we were -- I was saying about your ECL charges which you have provided under your stages 1, 2, 3. What we are seeing is, under your stage 3, actually there has been a reduction, while stage 1 charge has seen an increase. Now normally your stage 1, let us assume for last year, has normally been lower or even negative actually. You reduced it. I mean it helps, while this time around, we have seen a significant increase, while for your stage 3, we have seen a reduction. One can understand the loan impairment reduction, so I wanted to understand from this point of view, I mean, how you see it going forward given that COR has reduced quite nicely.

Yes, yes, yes. A very valid one. I mean, last year, the increase in provisions provided for stage 3 -- mainly to achieve the target set before by the Board and the management, which is 100% coverage ratio. Before, it was about 85%, so to enhance or to reach the target which is 100%, we have to provide some provisions by end of Q4 2024. In Q1, as you can see, we have a drop of our nonperforming assets by almost like QAR 130 million, which brings down our nonperforming ratio to be at only 2.9%. And -- yes. You can't hear me...

Yes, I think [indiscernible] on the call -- yes, we can hear you. Go ahead.

Okay, okay. So basically, as I highlighted, that we already achieved 100% coverage ratio goal by end of 2024. We had a good reduction in our nonperforming ratio, nonperforming loans, by end of Q1 by QAR 130 million, to be at only 2.9%. So I mean, as a response of this one, we reclassified some of our provisions from stage 3 to stage 1 and 2 under ECL. That's why you can see some increase in our ECL provisions compared to the lower provisions provided for stage 3. I hope I clarified your...

And so I mean -- yes. So I wanted to understand in that perspective how you see it going forward in the second and the third quarter. Are you going to be continuing to do this kind of practice, stage 3 to stage 1? Are -- you could -- I mean overall reducing your cost of risk further down.

In terms of cost of risk, as I highlighted as well many times over last year, we have a target to achieve, which is 100%. So the main [ driving ] of our cost of risk is to achieve our targets. That's why even -- we started from 2021 to provide like -- reached almost like more than 100 bps over 2022, [ 115 ] bps. So in Q1, we only provided 21 bps for -- as a cost of risk, but that's not mean that we are not willing to provide any more. It's depending on the size or the targets we want to achieve. We already achieved 100%. We're at 105% or 106% coverage ratio, so there's no any need to -- any no need -- any need more to provide any provisions. We continue -- but even we continue to enhance our coverage ratio for stage 1 and 2. As you can see, it's at 5% for -- if you can even like break it down, you can see on the stage 1 we're at 0.9%, almost like 1%, coverage ratio for stage 1; at 10% coverage ratio for stage -- or 10.6% coverage ratio for stage 2. Even stage 2, it's at the same level. Stage 2, by end of 2024, it only represents 10.2% of the total financing assets. In Q1 2025, it's representing 10.3%, so no much move in -- as a stage 2, but even -- we'll continue to enhance our coverage ratio, which is up from 10.2%, to be at 10.6% by end of Q1. So it's not about how much the cost of risk. It's about what kind of level of coverage ratio we're willing to achieve.

Okay, fairly understood, sir, yes. And just one more question, if may I, on your investment income. We have seen a slight reduction actually, as compared to the run rate we have seen in the previous quarters, so can you just explain? I mean -- yes.

Okay, good one and fair one as well. You can't see as investment -- as a net, you will not see much drop in, as a net, investment income. We have a drop almost like 73 million as a return -- or an investment income drop, but on the other hand, we have about 59 million drop in our cost of banks. So basically we have less than 20 million drop in our investment, which is mainly due to the drop in the average yield on the investment portfolio as well as the size of the portfolio is dropped. Last year, the due-to-banks or financing investments with banks -- I'm not talking about only at the end of year, which is at only 14%. We started the year with more than 20% of our assets. Mainly it was driven by banks investment and placement. We ended the year with 14% only, which is the same position for Q1 2025. That's why you have this kind of reduction. And this is one of the adjustments we did over 2024 to enhance our asset -- our balance sheet position, which did get the return in terms of the NIMs, return on the assets, return on equity and net operating income. So we managed well over 2024. We will continue to monitoring this one and to work further to enhance it over 2025.

Okay, so can we assume that run rate of what we saw in the first quarter? Assuming the same thing will happen going forward in the next -- in case, suppose, you don't further increase your investment book size, can we say the same thing will happen? I mean a little bit reduction in the second or third quarter of 2025.

Are you talking about the size or the return or the...

No. I'm talking about the income -- return on the investment activities.

Income. The income is linked to the yield, the market's yield, yes, what is investment -- or the market is offering. We are very attached to the market, so if the rates drop, it's definitely the income will be dropped, but as -- at the size level, we are maintaining a reasonable size now. We might -- restructuring the size between -- investments in different types of investments like sukuk, fixed income or equities or [ different type in order to have the major ] investment with banks or placement with banks. So that is the kind of the strategic directions we're going to consider over 2025, but as a contribution of the full balance sheet, as -- I believe it will be -- remain the same, which is about 14% for the placement and almost like 12% for -- and on total, we're talking about 25% of the balance sheet will be for investment activities.

Seeing as there are no more questions in the queue, that concludes our question-and-answer session. I will now turn the call back over to our moderator, Bobby Sarkar, for closing remarks.

Okay, thank you, Dustin. So if we have no further questions, I want to thank QIIB management to -- for their time and for going over the presentation and answering our questions. And we will again pick this up next quarter. Thanks, everyone.

[ Thank you. Thanks, everyone ]...

Thank you, everyone...

Thank you...

Thanks. Bye-bye. Goodbye...

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.