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

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

Thank you, and hello, everyone. I want to welcome you to QIBs First Quarter 2025 Financial Results Conference Call. So on this call from management, we have Gourang Hemani, the bank's CFO; Vinay Balakrishnan, Head of Business Reporting and Budgeting. So I mean, 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 Vinay. Please go ahead.

Good afternoon, everybody. My name is Vinay and welcome everybody to QIB's Q1 2025 results call. We are pleased to announce a net profit of QAR 985 million for the period ended 31 March 2025, which is 3.1% above Q1 of 2024. Total assets of the bank have reached QAR 212 billion, up by 10.2% versus the first quarter of 2024. And 5.4% against December 2024. Financing and investing activities were the primary drivers of the asset growth. Financing assets have reached QAR 131.8 billion, having grown by 5.7% compared to March 2024 and 5.2% compared to December 2024. Investment securities have reached QAR 53.3 billion, having grown by 9.3% compared to March 2024 and up by 1% as of December 2024. Customer deposits stands at QAR 133.5 billion, registering a growth of 8.4% compared to March 2024 and 6.8% compared to December 2024. The financing-to-deposit ratio was 91.4% as of March 31, 2025, compared to the QCB maximum requirement of 100%, reflecting the bank's strong liquidity position. The net operating income of the bank after deducting the net profit attributable to Quasi equity holders is QAR 1.6 billion, up by 2% versus the first quarter of 2024. Total expenses of the bank have remained almost flat at QAR 268 million as against QAR 263 million in the first quarter of 2024. The cost-to-income ratio of the bank stands at 16.6% as at Q1 of '25, which is the lowest in the Qatari banking sector. On the asset quality front, QIB was able to maintain the ratio of nonperforming financing assets to total financing assets at 1.76% and return a healthy coverage ratio for nonperforming financing assets at 95% as at 31 March 2025. The bank has taken advantage of its good operating performance and continue to build total impairment provisions of QAR 357 million as against QAR 362 million in the Q1 of 2024. The bank was also able to improve its Stage 2 coverage ratio to 8.5% against 5.4% as of 31 March 2024. These actions taken by the bank reflect the bank's strong risk management framework as well as the conservative provision policy. The capital adequacy ratio of the bank computed in the Basel 3.5 guidelines issued by QCB is now at 21.4% as against 20.9% as of December 2024, which is well over the minimum required as per the Basel Committee. Just to add further that the current year financial statements have been presented and the previous year's has been restated to reflect that one of our subsidiaries has been classified in the financial statements as an asset held for sale. That's it from my side. I will hand it over to Shahan for the Q&A session.

We can go ahead and start with Q&A, please.

[Operator Instructions] And with our first question, this comes from the line of Chiro Ghosh from SICO.

This is Chiro Ghosh from SICO Bahrain. So I have 3 quick questions. The first one is, your loan growth was quite tepid over the last 3, 4 quarters. So this quarter, the loan growth was quite strong and supported by our equally strong deposit growth in this quarter. So if you can shed some color from where is it originating? And how do you see the rest of the year? Second is, we saw some kind of NIM pressure in this quarter. Again, how do you see the rest of the year? And again, if you can throw some color why there was some kind of NIM compression? And third is, if you can give some update on the corporate tax?

Thanks, Chiro. This is Gourang Hemani here. Welcome, everybody, to the QIB's results call Q1. Chiro, on the first one, the loan growth has been strong as we see the business environment improving, and we see that more interest coming in both from the public sector as well as the private sector side. We saw a decent growth coming this quarter from the public sector borrowings as well as we saw a very decent growth in our private banking and retail banking bit of it. So the growth is predominantly by these. And then on the other areas of corporate, we saw a decent growth coming from services and industry sector. This has been more or less aligned with what we have been saying that once the recovery cycle picks up, public sector will lead the growth and private sector will start following, especially in the areas which are related to the north field expansion and overall hydrocarbon capacity expansion in the country. In terms of the deposits, the deposit growth has matched with our loan growth, predominantly or the financing growth. This is in line with our policy, whereby we want to maintain high liquidity. Our total financing-to-deposit ratio is around 93%, 94%, well below the market averages. What you also see is the part of deposit growth is the funding of certain Sukuk's that matured in Q1 of 2025. We did not go for any refinancing given the turbulence in the market and use our franchise to be able to fund -- replace them through deposits from corporate and retail side of it. Overall, the NIM is, I would say, depends upon how you are doing the calculation. Overall, if I look at it, our NIMs overall are -- if you look at financing yields, then we are about 2 or 3 basis points below last -- below Q4 of last year. But if you take the overall NIMs for the first quarter, after taking into account all the investment book and everything, we are at about 3%, 3.02% or something like that, which is almost in line with the full year average of last year and a slight pickup compared to Q4 of last year. So our guidance has always been that we expect the NIMs this year to be flat versus what we have achieved last year, and I don't see any change in that. In terms of your third question, the corporate tax, as you are aware, we have also disclosed in detail in Note 22 of our financial statements that on 27th of March, state of Qatar published amendments related to income tax law, whereby they introduced the income inclusion rule and the domestic minimum top-up tax in line with the GLoBE -- in line with the BEPS Pillar II under the GLoBE framework. However, what -- these rules that are there in the GLoBE rules, they need to effectively translate into the executive guidelines of executive regulation that will be published by the General Tax Authority. What we understand is that the draft guidelines have been circulated for consultation with certain expert group identified by the tax authorities. Based on the inputs that we have received, we understand that tax authority based on the representation made by the corporate and corporate entities inside Qatar, including and especially QIB. They have agreed to bring in certain forms, there are reliefs that are available during the transition period of the implementation of tax whereby if you operate in 6 or less countries, including your home country as well as your net tangible assets are less than EUR 50 million outside the home country, then there is a 5-year relief period that is available. So we believe that if we apply -- if these guidelines are included in the effective in the executive regulations, and we should be able to comply. We will not be required to pay any domestic top-up minimum tax from that perspective. So that is the reason why you don't see any income tax line in our P&L other than what we -- what was in the past related to some of our subsidiaries. So, however, as a bank, we have always been very prudent and we have built other provisions under the total provisions line that have enough cushion to be able to take care of any tax liability if it were to come as well, due to any reason whatsoever, including noninclusion of these transition rules or QIB not able to comply due to certain reasons. Hope that answers your question in detail, Chiro.

Our next question comes from the line of Murad Ansari from GTN.

Two questions. Just wanted to follow up again on the NIMs because, based on our calculation, it's been quite a steep drop versus last year and this year as well. I mean I think in regardless of how you calculate the net interest income is lower versus what we saw. So just wanted to get a sense of how? Is there a timing mismatch over here where asset yields have adjusted earlier and funding costs should adjust later over the coming quarters? Is that something that's -- that will kind of impact the way it is going to be impacted? And secondly, on fee income. So we've seen decent volume growth, but fee income side has been fairly sluggish through most of last year, and that's except for the fourth quarter and now first quarter is kind of weak as well. So what are the drivers around those if you could get some color on that?

As I said, Murad, there are different ways to calculate it from our calculation perspective. Our net funded income is about QAR 1.375 billion compared to QAR 1.298 billion in Q4 of last year, and QAR 1.292 billion compared to Q4 -- Q1 of last year. So in general, we continue to see a positive trend and fairly being able to -- while there has been a volume growth, sometimes it's also a question of timing of the growth, et cetera, which you don't always see in the balance sheet because the growth could come in March, while you are averaging, et cetera. In general, I can tell you our NIMs have been stable compared to last year, and we expect it to remain in that level. What you will see is maybe you need to readjust your certain calculations as we mentioned, because -- we have reclassified the income of the previous year as well as the balance sheet of the previous year, related to the consolidation impact of QInvest, which has been classified as held for sale last year, on 31st of December. And whereby we are in the process of converting it from a subsidiary to an associate kind of a thing. So there will be no longer line-by-line consolidation of that. So maybe you can look into it. From our perspective, our NIMs have been fairly stable. On the second question, can you remind me Murad, again? Sorry, I missed it.

Yes. The fee income bit...

Yes. The fee income -- again fee income, again, we are moving away from line by line consolidation. Our QInvest subsidiary was a big contributor if you go line by line, in terms of advisory fees and the investment banking fees, et cetera. So from that perspective, it is there. We've seen a very decent growth in our retail business, especially coming from the cards and fees and services. What has been a little bit lagging behind is on the trade finance activity where we are slightly lagging behind what we would love to see. But overall, if you look at it, we believe on a full year basis, we still should be able to see a mid 3%, 4% growth on the overall fee levels.

Just a follow-up on the tax one also. I mean when do you know for certain -- I mean when do you expect a final decision on these relief measures?

There are -- as I said, first, we need to have the executive regulations to be published, okay? So that's we expect anywhere in Q2. Based on that, we will have to do an assessment and if required some consultation to see what does the final guidelines say because we don't have access to them. So we expect any -- somewhere around Q3, there will be more clarity when it comes to where it is. However, as I said, from the bottom line perspective, we have been super prudent as we have always been as a bank and created other provisions in our numbers. We should be able to easily compensate for those income tax charge if it comes. So even if the income tax charge comes, you are not going to see any retrospective impact on our bottom line, if I can say that.

Great. So just to confirm, almost -- there is almost a 100 million charge over and above the credit provisions that you have booked in the second -- in the first quarter. Those 100 million as part of that is reflective of these overlays that you're referring to in terms of tax adjustments, if required. Is that correct?

It's not tax adjustment. It is not tax adjustment. We have built precautionary provisions other than financing provision of above 100 million, which if required will be used for payment of taxes. If not, they will be available to either allocate it to financing provisions or reversals as the case may be.

And should we expect that -- I mean, you're saying -- you're mentioning that this finalization and executive orders could start from -- could be finalized around Q3. So you could continue to look at this conservative approach of building up other provisions in case of -- to reflect for the standard.

We'll keep monitoring and we keep reviewing and the decision will be taken as we get more information and get more clarity. So I would not like to give you anything for certainty because it is contingent upon things that are beyond the control of the bank. So we continue to evaluate how the things develop and how -- what we see as the potential impact, and then we'll take necessary actions accordingly.

Our next question comes from the line of Rob Skepper from Ashmore.

Yes. I just wanted to ask just on the guidance for flat NIM, what's the external environment that you're kind of using for that forecast? And could you give us a little bit of color on any sensitivity?

As I said, we have been always telling that the way we manage our ALM, the way our base looking at the ALM profile, we believe that we never benefited when the rates -- significantly benefited when the rates were moving up or we will also be able to take care of the situation when the rates were coming down. There are a lot of uncertainties at this point of time. I'm just saying assuming status quo and unless until something significantly changes, right? Because -- some of them are not only beyond the control of the bank or beyond the control of the country's economic environment. These are certain global uncertain periods that we are all experiencing. However, we do not -- we believe that even if the rates are cut or rates are increased, you could have a bit of a quarter-by-quarter impact. But, in general, we are confident that we should be able to maintain our NIMs where we stand.

Yes. Okay. Great. And then, yes, just coming to the comments on the -- on fee income, and you said you should be able to hit kind of 3% to 4% fee growth. Is that -- that's on a year-over-year basis taking QInvest out?

We only comment on a year-on-year basis. As I've always mentioned, that quarterly numbers do get impacted because of various reasons whatsoever. So I'm more building an annual trend rather than giving any guidance on a quarter-by-quarter basis.

Yes. But that includes the loss of QInvest's share or the de-consolidation of QInvest?

Both the numbers are out. So even the previous year numbers, if you look at in the financial statements, we have said that our...

On the restatement...

Our fee last year was QAR 2.10 billion. This year is QAR 2.7 billion. Marginal decrease of QAR 2 million, QAR 3 million, but we expect that to be recouped as we keep going down the year.

Our next question comes from the line of Nikhil [indiscernible].

By and large, many of your questions, I think, have been answered. Just again, coming back to the NIMs part of it. I mean we do know that your Sukuks are getting matured in the current quarter or year. And do we see any reissuance which can be done against this? Especially on Page 12 of your PPT, you have given about your new issuances. We do know the rates are high, and you have got one of the lowest LDR ratios, but do you see a chance in new issuances coming -- being done?

We are -- as we said, we are fairly liquid. We have the luxury of trying to decide what is the right time to go to the market. So we are not under pressure to really go and refinance, if as on a mandatory basis. We will continue to look into it to see a good window of opportunity that would be available, which would be fairly priced for us, and we can go ahead and do issuance. Just to give you an example, we did some private placements earlier in the year. And then we also did a QAR 200 million Sukuk issuance for international investors, again, on a private placement basis. So we do keep engaging with the investors. We will keep coming to the market. We'll definitely come to the market this year, hopefully. However, the timing of it cannot be given by any certainty because it all depends upon how the market conditions are at that point of time. So we continue -- but our intention is to continue to engage with the investors that build a curve and going into regular issuances each year.

I mean we can say something in terms of your overall cost of deposits could be the norm where exactly you will not go beyond that? I mean, in terms of...

I wish I had a crystal goal in terms of how the international interest rates are going to evolve. As I said, it's not just looking at one leg of it, you need -- as I said, if the interest rates rise, the cost of funding would go up, but we should be able to pass it on to the customers. However, if due to some reason whatsoever, there's interest rate cuts that happened, it will again be passed on to the customers. So I'm not looking at one side of the balance sheet to -- and assess the impact. I more look at it from the net funding profile that we are carrying.

Our next question comes from the line of Jon Peace from UBS.

I just had a couple of clarifications, please. So the first one is just the absolute level of noninterest income and net interest income. If I understand correctly, the step down from Q4 to Q1 was the de-consolidation of QInvest. So in absolute terms, we should think of the current quarter as the sustainable run rate of which we model growth going forward. There's been like a onetime reset for the de-consolidation? And then my second question, again, back to the tax rate. If you get the exemptions, is that permanent exemption? Or is it a transition phase? And if you were not to get the exemptions, I think you highlighted there were some offsetting buffers. I guess, these are the provisions on other assets at a very high stage coverage. But presumably, if you don't get the tax exemption, you have a permanently higher tax rate, whereas the buffers of finite. How long would those buffers last before you're not able to set the tax impact?

Okay. So a couple of answers I can give to that. The first one is, yes, line by line, what you see this quarter is predominantly what you would see without the impact of QInvest consolidation. However, as we have kept mentioning, building the trend of fees based on 1 quarter, as I just mentioned some time back, may not -- it's a choice you can make, but I don't think so. It's 1 quarter that represents the full year picture because there are certain fees that are seasonal, et cetera, that come in and impact. Our guidance is we see our fee income to grow by anywhere between 2% to 4% compared to the full year last year after removing the impact of QInvest from the previous year numbers. In terms of the tax thing, again, I don't want to jump ahead of what is lying for us. Only thing I can say is that it's not about utilizing the existing buffers that we have, what I mentioned is that we have created new buffers to take care. So -- it is not from the previous periods that we are utilizing to fund it. If we were to take a very, very, let's say, relaxed approach, which we don't, we could have not taken any provisions at all, but which we did. So -- and the tax, in terms of depends upon how the GLoBE rules are eventually incorporated inside Qatar, but it usually gives a 5-year transition period for the exemption during which the bank would always have a choice to say how they can better restructure its operations to be able to either benefit by not paying taxes or by trying to increase the profitability from those external operations so that it more than compensates for the tax impact. So I don't want to jump for 5 years down the line where we will be. But all I can say is, as of now, our numbers do incorporate any potential impact that could come from tax for this year. And the assessment and -- under the GLoBE rules, the assessment is done annually, whether you are taxable or not taxable, et cetera. So even if there could be situations where I could be taxable this year, but I could meet certain criteria, then I could become not taxable next year as well. So it all depends upon the executive regulations, the wordings of it and how they will be implemented. And that's why we are -- as of now, our assessment says, we will -- most likely, we will not be required to pay taxes.

Our next question comes from the line of Waruna Kumarage from SICO.

Thank you, Gourang, for the detail and a clarification on the tax treatment. I just have one question on that. I just want to understand this potential extension or the transitional arrangement of 5 years to a tax favor for 5 years. Is this the part of the draft, which is out of the consultation, which is issued by the tax authority? Or is it the proposal by the corporate? I just want to clarify that. That's my first question. And secondly, on the...

Go ahead. Go ahead.

Second question is on the asset yields. So in the presentation, it shows that the fourth quarter, the yields were 7.6% and it fell to 7.1% in 1Q. I just want to understand the reason behind the decline? Is it because of the composition of the loan? So what exactly was -- or am I reading this trend correctly? And those are my two questions.

On the first one, as I mentioned, I think, I don't know whether you were there on that part of the beginning of the call or not whereby we said that the revised draft regulation circulated by tax authority to an expert group does include that. Okay. However, does it make it to the final executive regulations or not? That is something that we need to assess going forward. Secondly, in terms of the drop in the rates, yes, there has been a drop in the rates. It's a more -- as I said, there is a lag effect always in terms of the rate cuts that happened last year. How does it impact this year, and it also doesn't take into account the timing of it. But if you see there is a corresponding drop in the deposit costing as well. So -- and I just reiterate what I said, please do not focus on one side of the balance sheet, you need to look at both the sides of the balance sheet when you're looking at the NIMs.

Correct. Okay. I mean my follow-up is that the jump in -- I mean, the increase in loans, which happened in the first quarter also would have had the part in this drop in the yields because of the timing, right? Because loans would have happened towards the end of the quarter?

I just mentioned it sometime -- Kumarage that's what I mentioned some time back as well, okay.

Our next question comes from the line of Abhinav Sinha from Lesha Bank.

I just have a question on loan growth. Given that you already have grown at 5% Q-on-Q in 1Q. So is there an upside to your guidance of mid-single-digit loan growth for this year?

As I mentioned, a large part of the growth coming from the public sector and the public sector do have a tendency of borrowing in the beginning of the year and coming during the end of the year and repaying like the way they did last year as well. So I would not like to change our guidance. We will continue to remain the same if we improve then -- if we exceed that, I think that would be a very welcome thing both from our perspective as well as from your perspective. But as I said, I do not have any visibility or predictability in terms of how long the public sector borrowings are going to remain because they do tend to have a tendency of getting repaid. So even if they get repaid, we'll be more -- we'll be offsetting it through lending in the private sector. However, if they don't repay it, then we could see a larger growth than what we have been indicating. But I believe we do not change our guidance because those are more based on how we believe the entire industry is going to move rather than QIB-specific.

Our next question comes back from the line of Murad Ansari from GTN.

Just a follow-up on the question was already answered last, on loan growth. But perhaps I could just maybe pick your thoughts on the retail side. So public sector driving growth initially and private sector following, I think that's fairly understood. But just wanted to get your thoughts on how you're thinking on the retail loan book expansion. We've had some rate cuts last year, perhaps we see rates stabilizing from here onwards. But how do you see the retail loan book evolving over the course of the year? And are you seeing any pickup in demand due to lower rates?

As I said, it's -- our personal loan book is a combination of both retail as well as private banking. Retail book normally grows in an organic fashion, we believe it normally grows in the range of 5% to 6% annually. What really changes the growth model is the private and affluent banking, whereby you do get some good opportunities out there and that continues to look positive. We have seen a good positive first quarter. And we believe that should continue to follow. I think we overall see economic activity slowly coming back. So that's an incentive for both and private sector to really start coming in. Though slow, but we start seeing positive signs, as you can see from our Q1 asset growth.

Yes. And just maybe on loan growth again. So again, I mean, you mentioned that industry numbers on loan growth numbers have been decent. Commercial has been good as well. Would you be able to give us some color whether these are kind of working financing needs that are driving these demand? Or is there an investment pickup that you're seeing?

It's a combination of things, right? So in the sense, I would not have the numbers really readily available in terms of what is the underlying purpose of each and every financing growth that has done. But the general trend -- the general trend is that we see a lot of projects that get awarded slowly and steadily related to north field expansion. So some of them are investment related, some of them are more related to building up capacities and logistics, et cetera. So it's a combination of it. And some of them are more, let's say, project financing, which once they deliver the north field expansion project, they will eventually get repaid or get converted into their normal working capital requirements, depending upon the nature of the borrowers. But in general, as I said, while we believe that Qatar is in a very strong position to really leverage from the north field expansion impact that really starts flowing into the overall economy from end of 2026 onwards. So we feel fairly positive at this point in time in terms of our grown -- loan growth outlook. However, we want -- as I mentioned, we don't want to start expecting significant. We still maintain our guidance around 5% to 6% for this year, full year.

Sure. And on North Field expansion linked project, I think your earlier guidance was that we'll see loan demand linked to that coming through in the second half of 2025? Still maintaining that guidance?

We started seeing some of it. We started seeing some of it, and it should start picking up. So it's still -- the guidance remains the same, nothing much has changed.

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

Just really one question. And then I think the question was asked before, is about net interest margin. So your guidance for the full year itself '25 for the margins to be flat. Right? So when I look at Q1 '25 margins, that implies that you are kind of expecting a decent uplift in your NIMs in the remaining quarters of 2025. Is this correct? Just wanted to clarify this wasn't clear. I dialed in late, by the way.

As I said, our NIMs for the first quarter was not very far away from the overall NIMs that we achieved last year. So we are -- they are marginally impacted differently on how you calculate it, but they are almost in line with what we had last year. If I take my -- all my profit-bearing assets and liabilities, and if I take all my net funded income, our calculation shows that our NIM is around 3%, which is in line with the full year number that we had last year.

Our next question comes from the line of Haya [indiscernible] from NBK Wealth.

I was just wondering what sectors contribute to your Stage 2 loans? And are you comfortable where this currency -- where do you see it going? And do you have like a target?

Can you speak it a little bit more louder? I couldn't get your full question, I'm sorry.

Yes. So what sectors contribute to your Stage 2 loans? And are you comfortable where you are now? Or do you see it increasing? And what's your target?

I think if you've seen how we've significantly reduced our Stage 2 portfolio compared to last year. Currently, the Stage 2 ratio is about 12.94% of the total exposure compared to 18.3% last year. We are very comfortable at the current level. There has been no major change in our Stage 2 composition in this quarter compared to previous quarter. It is fairly distributed in line with our private sector exposure with a little bit more, let's say, prudency that we show in terms of -- especially when it comes to certain historical contracting exposures, et cetera, or some real estate exposures. But in general, the overall weightages of different sectors are aligned with the way the -- our private sector [Technical Difficulty]. Our NAV coverage has moved up to 8.5% if you compare it with 5.4% of Q1 last year and even 8.3% at the end of December. So we continue to remain prudent, and we continue to manage our risks in the best possible manner.

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, Shahan, for closing remarks.

All right. Thank you, Gourang, for giving us an update on the quarter, and thanks for everyone dialed in the end. So we'll pick this up again next quarter, guys. Thank you very much.

Thank you very much, everybody.

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