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

Hello, and welcome to the Qatar Islamic Bank Conference Call. [Operator Instructions] Thank you. I'd now like to welcome Mr. Shahan Keushgerian to begin the conference. Shahan, over to you.

Thank you. Hello, everyone. I want to welcome you to QIB's Fourth Quarter 2023 and Fiscal Year 2023 Financial Results Conference Call. So on this call from management, we have the bank's CFO, Gourang Hemani. So as usual, we will conduct this call with first management reviewing the company's results, followed by Q&A session. I will turn the call over now to Gourang. Please go ahead, sir.

Good day, everybody. Sorry to keep you waiting. Apparently, the operators are struggling to get all the participants in. But we'll start anyway, and we'll have the others joining us as we keep moving forward. So Happy New Year and good day, everybody. Thank you for joining QIB 2023 Annual Results Call. Qatar Islamic Bank yesterday announced financial results for fiscal year ended 31 December, 2023. Net profit attributable to the shareholders amounted to QAR 4,305 million for the fiscal year 2023 compared to QAR 4,005 million for 2022, marking an increase of 7.5% over the last year. The basic earnings per share for year 2023 is QAR 1.73 compared to QAR 1.62 for the previous year. QIB Board of Directors proposed a dividend distribution to shareholders of QAR 0.725 per share, that is 72.5% of nominal share value, which represents an increase of 16% compared to QAR 0.625 per share previous year. The proposed dividends are subject to approval by Qatar Central Bank and QIB's General Assembly. The total assets of the bank now stand at QAR 189.2 billion, representing a growth of 2.8% compared to previous year 2022. The growth drivers were financing and investment activities. The financing activities have now reached at QAR 122.4 billion, having grown 2.6% compared to last year, while investment securities have now reached QAR 48 billion, that is up 4.9% against December 2022. Customer deposits at the same point of time now stand at QAR 121 billion as of 31 December, 2023, with a financing-to-deposit ratio at 96.5%, which remains well below the industry average and QCB maximum requirement, reflecting the bank's strong liquidity position. QIB continues to replace expensive short-term non-resident deposits with longer-term funding. QIB has issued 5-year senior sukuks in international markets, along with -- totaling to USD 950 million through public issuance in subsequent TWAPs in Q4, further reflecting its strong financial profile and investor reach. On the profitability front, the net funded income represented by income from financing and investing activities after deducting the cost of funding paid to deposit and sukuk holders registered growth of 3% to reach QAR 5.5 billion in 2023 against QAR 5.37 billion for 2022. The net financing margin for the year represented by financing yields less cost of deposits, marginally improved by 10 basis points to reach 3.6%, while overall net margin of the bank after considering all profit-bearing assets and liabilities also improved to 3.18%. The net fee and commission income has also registered a very healthy growth of 9.7% to reach QAR 889 million in 2023 compared to QAR 810 million in previous year, positively reflecting on the bank's core operating and banking service activities. The bank continues its strive to improve efficiency through digitization and automation, supported by strong cost management discipline, helping it to contain its annual operating expenses at QAR 1.1 billion. That is almost flat against previous years despite the global inflationary pressures. As a result, the bank was able to bring down its cost-to-income ratio from 17.4% in 2022 to 17.1% in 2023, which remains lowest in the Qatari banking sector. On asset quality front, QIB was able to manage the ratio of non-performing financing assets to total performing assets around 1.7% as of 31 December, 2023, one of the lowest in the industry, reflecting the quality of bank's financing asset portfolio and its effective risk management framework. QIB continued to create precautionary impairment charge on financing assets for QAR 1.1 billion for the year 2023, and maintained a healthy coverage ratio on non-performing financing assets at 87.5% as of 31 December, 2023. QIB's prudency in building stronger balance sheet and reducing P&L volatility resulting from any future asset quality migration is reflective from healthy ECLs maintained for Stage 1 and Stage 2, which now stands at 3.8% and 5.1%, respectively. QIB continues to remain successful in maintaining strong capital positions, at the same point of time, improve dividend and generate strong return on equity to its shareholders. The total shareholders' equity has now reached QAR 25.4 billion, an increase of 9.2% compared to 31 December, 2022, with total capital adequacy of the bank under Basel III guidelines at 20.4%, which is well above the regulatory minimum requirements prescribed by the Qatar Central Bank and Basel Committee. I will now hand over to Shahan to coordinate any questions that may follow.

[Operator Instructions] Our first question comes from the line of Adnan Farooq from Jadwa Investment.

Happy New Year. Thank you for arranging the call. I just had a few questions. One was regarding the trajectory of NIMs going forward. Fourth quarter NIMs were, again, better than third quarter NIM. How do you see? [Technical Difficulty] Can you hear me?

Yes. Heard some strange noise in the background. Go ahead.

Some strange noise here as well. Sorry about that. So, I was asking about the NIM trajectory going forward. How do you see NIM shaping up? The second question is around your financing growth outlook. How do you see the market shaping up? Now it's been more than a year since the World Cup has ended. You mentioned in the past some concerns about the real estate market. How do you see financing growth over the next year or so? And the last question is around your cost of risk. You have always maintained that the bank will continue to take precautionary provisions as long as the operating income is healthy. Does that still hold going forward for the next 12 months to 18 months?

Thank you very much. I'll try to address your question sequentially. So on the NIMs front, I think -- I really don't think so the quarter-on-quarter NIM sometimes may be affected by different bookings of assets or liabilities. Overall, in general, I would say we expect the NIMs to remain fairly stable. I think we saw marginal improvement. Maybe we might see a small reduction of about 3 basis points to 5 basis points, but nothing very significant. If you look at historically, even during the periods of low interest rate environment and the rising interest rate environment, our NIMs have fairly been stable. Marginal uplift we have got, but nothing significant. So, we expect the NIMs to remain around these levels going forward. On the balance sheet -- on the financing growth side, I think we continue to see the trend, whereby the public sector credit continues to remain where it is, with no major growth coming in. Thankfully, with almost all the short-term facilities being repaid and with the impetus that the private sector should get from the hydrocarbon-related activities, that will start percolating down to the level of contractors, subcontractors, services, industries, et cetera. We believe any 2024 loan growth to be in the range of 5% in the market, predominantly driven by the private sector. On the next question on the real estate market, I think we see -- we were expecting, there were some corrections to happen on the real estate market, but we're fairly happy to see that they have remained fairly stable and resilient in overall. So, we don't see much drop in the pricing, et cetera. There are certain sectors like the one where we had said was the commercial real estate, which continues to remain a bit under challenge. But that's been there for some point of time, and I think we've all working how to manage with those ones, especially given the fact that our exposures are far well collateralized and majority of them are covered through a very decent repayment profile. So, we're not worried on that one. Finally, on the cost of risk, as we said, we continue to remain -- we continue to remain very prudent. We will continue to build provisions. However, if you see on year-on-year, slowly and steadily, the provisions are coming down. However, we are not planning to do any significant reduction in 1 year or trying to reverse provisions, et cetera. I think it's always healthy to anticipate any risks that we do not know of at this point of time. So, I think it builds the balance sheet strength and it reduces the P&L volatility, helping both shareholders of the bank to have a better view on where the bank is heading towards.

Our next question comes from the line of Chiro Ghosh from SICO.

This is Chiro Ghosh from SICO Bahrain. Two very quick questions. First one is, if you expect that the private sector primary loan growth will come from the contracting and the subcontracting sector or maybe to some extent, the services sector, how comfortable are you with lending to this sector? Because in the past, there has been concerns related to the asset quality to this sector, how comfortable you are with those sectors? That's my first one. About my second one is slightly off. So, I see that the NPL coverage of your Stage 1 is quite high. I mean, definitely way higher than the peers, while Stage 2 is relatively much lesser. I mean, if you can throw some light, this is very counterintuitive. I mean, Stage 2 independently is still high, but relative to Stage 1, it's not that high, if you can throw some light? Why this [ kind of combination ]?

Going to your first question on the contractors and subcontractors, yes, the sector has seen some challenges. But again, it is all going to be driven by what is the underlying contract and what is the ultimate repayment arrangements for those contracts, that is going to be. So, yes, we do expect that a certain portion of the growth will come from that area because, again, we've seen announcement made by -- as we had told in the previous call announcement made by Ashghal and other infrastructure-related spend, which will go to contractors. We'll have more service-related activities coming in as a portion of -- as the country expands its LNG production, the necessary services sector would also have to grow. So, I think these will continue to remain the key factors that will contribute to the growth. Going by your -- on the second comment on the ECL coverage, I would not be able to comment on the ECL coverage of other players in terms of why they -- because it is all dependent on what is the underlying asset and which sectors, what are the kind of collaterals that are being held, and what is your historical loss experiences on those sectors. I think we started to improve the coverage on Stage 2, as we had told in the past. I think we have moved almost from 3.3% to 3.4%, now almost to 5%. So, we continue to improve. However, again, it's very asset quality driven in terms of what is inside the Stage 2. So, I don't think so you could paint a brush, a generic paint brush across all the industry and say that if x Bank has this or if the sector is this, then you should be having this. I think it's all driven by bank's own internal asset quality and modeling metrices.

I was surprised that your Stage 1 coverage is quite high. That's what from where I came to that question.

Stage 1 coverage is very much driven by where -- what the model is giving and then it includes certain precautionary management, let's say, assumptions that we put in to counter any potential migrations that could happen from Stage 1 to Stage 2.

And one more thing on the CASA front, how are you seeing, let's say, for the whole economy per se? I mean, is there a lot of competition for that?

Well, in general, the CASA competition has always been there. So it's not that CASA competition between the -- in the sector is not there. But in general, you continue to see that. In a high interest rate environment, there is a natural migration from CASA to term deposits. Or even in certain players, you could be -- even though they are termed as CASA, you could still be seeing that they continue to attract significant profit share for the interest in the current environment. So, I would say we are fairly happy with the level of CASA that is there. I think once the interest rate starts normalizing, we expect that those high levels that used to be there prior in the earlier period would start coming back slowly.

Our next question comes from the line of Aybek Islamov from HSBC.

Yes. A few questions from me, please. I'll ask 3 questions. First is about fee income. Quite a good sequential pickup in your fee income in the fourth quarter. Can you elaborate on that? And I guess I would want to know to what extent that is exceptional increase in fee income versus sustainability of that fee income in Q4 and implications for 2024? Can we rely that -- can we rely on this Q4 fee income when we think about this year's fee income performance? Second one is on your cost of risk asset quality. So, hardly any write-offs. I would say no write-offs. During 2023, your cost of risk steadily declined all the way through Q4 '23, right? How do you think about your write-offs and cost of risk in 2024? Are you planning to reach a certain target in coverage ratios and we are going to see write-offs after that? Or we're going to stay at 0 write-offs and cost of risk potentially staying at Q4 '23 levels during 2024? Is this the way to think about it? That's my second question. I think thirdly, we just had a call with Qatar National Bank, a lot of questions about corporate tax in Qatar. What are your thoughts about taxation? And can you elaborate on what kind of tax rate are you going to see for Qatar Islamic Bank in 2024?

Okay. Answering your questions. Again, Aybek, we have always elaborated on the fact that we would not like anybody to model any fee income based on one quarter because there are businesses that give incomes in fee income that come especially on the advisory side and the success fee side. So, you really cannot use one quarter. I would say, in general, I think we have been showing a very healthy growth of almost 7% to 9%, if you look at over the last few years on the fee income side. We still continue to -- we wish we and we aspire and we are working towards various products and services to see how we can further improve the share of our fee income as a part of the total income. But yes, we still believe we are still on the right track. We are working on various initiatives, whereby both on the corporate side as well as on the retail side. While on the retail side, certain areas are governed by the QCB guidelines and rules, where you cannot change the fee structure and have to abide by their guidelines. But overall, on the -- other than those, we are working on to see how we can improve, especially on the cards, on the trade finance, on the advisory side, et cetera. We have continued to work on that. On the cost of risk and write-off, I think we discussed that in the previous call as well that I really don't know. I would not link write-off to the cost of risk at all. Cost of risk is to cover what is the incremental, I would say, asset quality deterioration that is going to happen or the kind of prudency, which the bank wants to exercise. In terms of the coverage, we are fairly healthy coverage. If you see all across the year, we had been maintaining more than around 85% to 95% is the coverage ratio that we work on. In fact, as well, it's not 85%, I would say. 87.5% to 95% is the coverage ratio that we work on and will continue to remain. Write-off is just more about the level of NPLs that would be there. We could -- if at any point of time, we believe that the recoverability from the customer is not there, we'll go ahead and do the write-off. So it is not about the cost of risk, but it's more about the recoverability from the customer that decides whether we can write-off or not. But in terms of the coverage, I think we have enough coverage to be able to write-off. On the third question on the corporate tax, I think it's still an evolving subject. The reason I say evolving in the sense is while Qatar has committed to meet the OECD agreements and is committed to applying minimum 15% tax. However, there are various other clarifications that we seek from the tax authorities out here in terms of -- there are discussions in terms of what kind of concessions they would be providing to be able to offset the minimum tax, et cetera. We have not been communicated at this point of time that those kind of taxes are applicable for 2024. We don't see any indication that it will be implemented this year, unless and until there is some other global timelines that need to be met, which we at this point of time, we are not aware of. But in general, we expect that it will be somewhere in '25. I would not be able to tell you the exact timeframe, but I don't think so it's a 2024 kind of an event at this point of time.

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

I just wanted to ask again in line with the previous but one caller who asked about the reserves on the balance sheet, your coverage ratio. You mentioned in the answer, I believe, that your coverage ratio is quite specific. It's specific in relation to each bank and it's also what you're modeling behind the scenes. So, I suppose the appropriate question is, what specific risks do you see out there that would necessitate a Tier-1 coverage that is so high? Because you have to -- if each model is specific to each bank, then you have to see some kind of risk out there, which would necessitate such a high coverage ratio. If you don't, then the coverage ratio is too high. It's quite a binary situation. So, I was just wondering if you could comment on that, please.

There's nothing called the binary situation. It's always a very subjective situation. I would put it like that. The risk that we see is that we -- while the interest rate hikes have happened this year, we don't see that the full impact of the interest rate hike on the cost of -- on the quality of the credit could be fully be seen because I think it takes a longer point of time for it to reflect on the impact of high interest rates on the performances of various corporate entities as well as individual ability to service. So, we tend to take a much more precautionary approach and much more conservative approach than maybe some of the peers that are taking. So, I again answered on the same similar way that the situation could be different when it comes to Stage 2, when it comes to what is the kind of quality of portfolio that you have. I think given the fact that our portfolio has been a low default portfolio, we tend to be much more precautionary in terms of ability to absorb any potential losses that could come, especially in this high interest rate environment on the asset quality. I hope this answers your question.

Yes. I suppose then to sort of paraphrase, you don't see the environment as particularly positive or you see it as less positive than other banks, I suppose, is probably a better way to put it.

No, it's not about being positive or negative compared to peers. It's about being more precautionary or less precautionary compared to peers.

Yes. Okay. That's fine. At some point, I suppose that. At some point, it either comes through or it doesn't. So at some point, it will impact on your P&L provisioning. If it's a benign scenario, then you are just writing -- you're putting away far too much through P&L provisioning and you're going to have to start writing that back at some stage. And I suppose you're just trying to get an assessment of, I suppose, when that happens.

Yes. Our expectation and hope is that at some point of time, the benign scenario continues and we reduce the charge that we need to take on the -- for the impairments. However, as I said, we've been saying -- I think it's all about what -- in very many cases, sometimes it is also driven by the fact that what is your expectation and what is your ability. So in very many cases, you will find that the coverage ratios are lower purely because of the ability of certain banks to be able to absorb more provisions. We have been telling in the past and we continue to say that as long as we have a good operating performance, we believe in building stronger balance sheet.

Okay. That's a good answer. Second question I wanted to ask about the payout ratio. And this is one where I think you've -- I mean, you've been consistent. But if you look at your payout ratio, payout ratio has consistently come down in the last 10 years. And that is from a situation where the business was not as strong as it is today. It's a much stronger business today than it was 10 years ago, and that's to management's credit. So, what are you doing there? Because -- and yes, it's a Board decision. I know it's a Board decision, but the Board takes advice from management. So let's be realistic about that. What's the strategy there? Because your Tier 1 continues to build, your capital continues to build, your balance sheet -- at what point, does your balance sheet becoming lazy from sort of efficient to actually lazy? How are you thinking about the capital and dividend side?

I think we have -- our Board has taken a very prudent decision of, whereby, even though our net profits have grown by 7.5%, our dividends have grown by 16%. So, that goes to show the fact that the Board of Directors want to take care of keeping the investors happy, but at the same point of time, maintaining healthy capital adequacy. I think we are all entering into a new -- QCB is trying -- is introducing new guidelines of the Basel III.5. While they have issued the paper, there are few areas that still are being under review and which we expect to get sorted out in Q1 of this year. And we hopefully will get a better picture in terms of what would be the longer-term impact of the implementation of the Basel III.5 guidelines. So, I think -- and I think we are far from being lazy. In fact, we have got one of the healthiest return on equities at this point of time. And I keep mentioning that stronger capital helps in getting you better ratings, helps you in your better cost of funding. So if you look at it in isolation, it could appear very different, but we look at it as one of the key pillars that has provided the strength to QIB what it has at this point of time. I think the fact that we are rated by Moody's one notch higher than almost all other banks except QNB, which is one notch higher because it gets rated as a government-related entity. But as a public sector entity, we are rated at least one notch higher than all other banks in the country. That gives the kind of, let's say, the stronger capital helps in building that. And the direct consequence of the fact is the fact is that we have been instrumental in terms of being able to go and open up capital markets on behalf of Qatar, like the way we did. We did the sukuk. And I think these are all part of the same overall picture, whereby you don't look at each element in isolation. We believe 3 key pillars, which I don't need to tell anybody, but it's basically capital liquidity, profitability, asset quality, whatever you want to really put together. And I think we want to keep the right balance on all of them and continue to give very decent return to our shareholders. So, I don't think so it has reached the laziness stage. Once it reaches the laziness stage as per your comment, the Board will definitely take a look at it. But I think it gives the ability for the bank to be able to grow in the right balanced manner going forward.

Our next question comes from the line of Ejayan Al-ahbabi from Al Rayan Investment.

Mr. Gourang, thank you for your comment. This is Shabbir Kagalwala from Al Rayan Investments. I had a couple of questions. Just wanted to know, we have seen a sequential increase in the investment book of QIB. I would like to know what's the strategy on that? And how much yield are we seeing on the book currently?

I don't have -- it's too much of noise. Can somebody put on mute? I think there's too much of background noise. Thank you. Yes, Shabbir. Going to your answer, I think it's a very balanced strategy, which the bank is adopting to say, whereby the overall loan book growth has not been very strong within the system. We are trying to see how we can deploy our liquidity in high-quality assets domestically and internationally, predominantly through sukuks or other investments. So overall, I do not have directly with me the yield on the investment side. But I would still say it's a combination of the fact that it helps us in getting the yield, but at the same point of time, large part of it remains in Qatar government sukuk. I think almost 85% of our investment book, investment securities are in state of Qatar sukuk. So it's the balance that we try to get in, in terms of getting good quality liquid assets at the same point trying to get some yield pickups.

I have a sukuk, which is maturing in 2024 for QIB. What are the plans for that? Do you plan to refinance that or repay that? How are you looking at that sukuk?

As I just mentioned, we just raised about $950 million through public issuance as well as the 3 TWAPs that we did on it. I think as a liquidity, we are sitting fairly comfortable at this point of time. We will continue to assess how the markets are, and we can take a call whether we want to go and raise funding again or not. But again, we have -- in the past as well, we've had maturities. We have repaid them successfully and tried to go to the market at the point of time we believe it's most conducive to go to the market. So, we don't have any significant refinance risk. As I was just mentioning, I think in terms of the liquidity parameters, we have one of the best loan-to-deposit ratios. We just have a long-term dollar liquidity that we have raised. So, there's no immediate need or requirement to go to the market. However, if the markets remain conducive, we may always look at it.

Final question is on the cost-to-income ratio. We have seen a lot of initiatives by you in terms of reducing cost and the total income increase has also helped you in terms of reducing the cost-to-income ratio. Do you think that this is the bottom or we see more reduction in the cost-to-income ratio in 2024?

It's a question I keep answering to say that I wish we want to be able to continue to maintain very strong and healthy cost-to-income ratio. I think anything below around 17.5% and below, I think it's a fairly, fairly good region to remain in, especially considering the fact that we are a private sector retail bank. So from that perspective, I think the we put ourselves as a target to keep improving it, but we also have to keep into consideration that there are investments that we keep making in. There are costs -- there are inflationary pressures that continue to keep building. So, we'll work towards to say how we can maintain it. I'm not sure if we can improve it further, but I think we continue to work towards it. Very difficult to give an answer to this one, given the fact that we've reached levels which are very, very, very challenging.

Our next question comes from the line of [ Nikin Patel ] from [ CBFH ].

So just a couple of questions. One, again, on the same NPLs. So, your NPLs actually have been quite fairly stable over the last couple of quarters or before that. But fourth quarter has seen a slight increase, and we can understand your precautionary approach. But I mean, given that your coverage ratio has come down and in the previous calls, you used to mention that your fairly -- we'll always try to keep it in the range of 95%, around that range, 95% to 100%. So do we see that in 2024, we could be seeing against the provision coverage ratio going back to that particular levels? And my another question has got to do with, again, your other expenses. Of course, cost of income risk is quite, I mean, the lowest, but your other operating expenses have seen quite an increase in the fourth quarter. So is it a one-off? I mean, can you just give some color on it?

As you said, answering on the first one, we've always said that we'll continue to maintain healthy coverage ratios. Our target is around 95%. We will progressively increase it towards that. The NPL ratios, it's a marginal increase. I think we did a -- we had a very, very small NPL generation. We did not have to do any write-offs, et cetera, to be able to bring it down the overall NPL ratio. I think we are fairly well below the market. So, I really don't think so that it's a matter of concern at this point of time. On the last question on the increase in other expenses, I really don't think so that there is any way we had any one-offs, et cetera. I think sometimes what happens is that when you come to the closer to the year-end, you start looking into your accruals and try to make sure that you are fairly well covered in terms of all your commitments. I think it's more of an impact of that rather than anything more specific. There's not been any significant outlays that I can think of at this point of time.

Our next question comes from the line of [ Yangzi Buzale ] for Millennium.

I was going to ask some questions about cost, but others before me asked about them. I'm just going to ask again and then I have a separate question about dividends. So in terms of costs in the next few years, because over the past 3 years, 4 years, you've maintained an annual absolute cost base, which is pretty much constant. Going forward, you said it's pretty challenging to improve further the cost income ratio. And we are looking at an environment where you have some volume growth, some fee growth, and you're not expecting a major decline in margins. So, you will continue to deliver. You will continue to deliver revenue growth. So at one point, do you need to start investing so that there is an absolute increase in your cost base in '24-'25 to deliver growth in the business? That's my one question. And the second question is that the dividend you announced from 2023 implies a 40% payout on your reported net income. Going forward, should we look at your dividend payout on a payout basis? Or should we look at like some sort of a progressive increase in dividend per share every year so that shareholders are happy to see some growth in dividends?

Okay. On the cost front, I would not say that we have not been investing. We have been continuously investing on our digital and automation initiatives. We have continued to improve on our human resources. However, what we do and as we have been doing in the past as well is that we try to exercise a lot of cost discipline. I think a part of -- we did have some natural growth in expenses that is bound to happen this year. However, a bit of it was offset by the fact that there were some one-off expenses that we had in 2022 related to FIFA World Cup. So, those kind of expenses did not repeat in 2023. So, those reduction in those savings and expenses kind of financed, if I can use the word, the incremental costs that we had to spend. We also had -- if you look at other number that you could see is that our depreciation had come down a little bit compared to last year. That's because we had our core banking that completed its depreciation period. So, that was also a bit of benefit that came in and kind of compensated the incremental cost of technology investments that we keep doing on an ongoing basis. So in general, as I said, we continue to invest but invest, let's say, more -- in a more disciplined manner with, I would say, a large part of our spend directed towards how we are going to improve in technology, digitalization, et cetera. So, we take pride in the fact that we have one of the better mobile banking and other digital platforms that we offer to our customers, both on the corporate side as well as on the retail side. So it's not about not making investments. It's just about making the right investments that we believe are going to generate more revenues or improve customer experience or increase the risk framework in the bank. On the dividend side, I think, as a management, we propose to the Board various alternatives given the fact that we are fairly well capitalized. It is not -- the capital is not one of the determining factor or the constraining factors in terms of the level of dividend distribution. I think the Board wants to go in a very progressive manner in terms of how it wants to increase the payout ratios. I think I just mentioned that while our net profits increased by 7.5%, our dividend increased year-on-year by 16%. So, I think we are trying to reach a point, whereby, I think you could start relating the payout in terms of -- that the dividend in terms of payouts rather than purely in terms of the systemic increase as well. So it's a combination of the 2 that the Board takes into factor how to maintain [Technical Difficulty] and as well at the same point to increase it.

So, we can assume there is some room -- because of your comfortable capital position, there is some room for payout ratio to increase as well.

I think we have increased this year. So, we'll continue to see how the Board tries to take that forward.

Our next question comes from the line of [ Fatnav Al Sakhou ] from SICO Bank.

Hello? Is my voice clear?

Yes.

Hello? Yes.

Yes. We can hear you loud and clear.

Yes. I just have -- my question would be about the liquidity situation in the private banking system and what's your reliance on international deposits?

I think the overall liquidity situation in Qatar continues to remain pretty healthy. We have seen the number of initiatives that are taken by the government, especially on the fact that they have been repaying since 2022. They've been repaying a lot of short-term borrowing. We continue to see lot of deposits being injected into the system. So overall, the liquidity situation remains quite healthy, I would say. It is not over-liquid or neither -- but there is not much shortage of the liquidity as well at this point of time. In terms of the deposit side of it, I think if I look at my total deposits, 89% of our deposits at this point of time are from inside Qatar. Our exposure to non-resident deposits has been -- significantly, we've been reducing it. I think at the end of 2022, the ratio was -- non-resident deposits was about 16%. At this point of time, it is about 11%. So, we have made a significant effort to reduce reliance on non-resident funding by attracting more longer-term funding through syndicated facilities, bilateral borrowings, capital markets, sukuks, et cetera.

Our final question comes from the line of [indiscernible] from Bloomberg.

Can you hear my voice?

Yes. We can hear you.

Happy New Year, and thank you for your presentation. We see a quite significant increase of net cost of placement from bank's line item, which is part of your investing activities compared to the 2022. Our question is whether -- what is this item definition by nature? And when you estimate the margins -- financial margins, do you evolve this line item because it might have significant implication, inclusion or exclusion from the estimation, if you could elaborate on this?

This line item predominantly represents the profit or the interest that we pay on the interbank borrowing, the syndicated borrowings that we have on our balance sheet. So, this is the cost of net borrowing from the interbank market.

So, technically, it should be part of the cost of funding, right, if we correctly understand?

Yes. You can add it to the cost of fund. But as an Islamic bank, what we do is we show each element of the payouts separately because the payment to the depositors is shown as payment to unrestricted investment holders. The payment to sukuk holders is shown separately on the face of the P&L, while the payments made on the interbank side is included as a part of netting it off against the investment income. So, that's why we call it net investment income. But on the NIM calculation -- on the NIM calculations, it would not make any overall impact as long as you take it, whether you add it to the gross revenue or whether you deduct it from the cost of funds. So on the NIM side, it would not be, but if you're looking at separately the yields and the cost of fund, yes, then you need to take it out and do treat it accordingly.

Thank you. It appears to have no further questions. I will now hand the call back to Mr. Shahan Keushgerian.

Okay. We can conclude the call. Thank you very much, Gourang, for giving us an update on the fourth quarter and the full year of 2023. And we'll pick this up again next quarter. Bye.

Thank you very much. Bye-bye. Bye-bye.

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