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

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

Thank you, and hello, everyone. I want to welcome you to QIB's Third Quarter 2025 Financial Results Conference Call. So on this call from management, we have Gourang Hemani, the bank's CFO; and Vinay Balakrishnan, Head of Business Reporting and Budgeting and IR Officer. So as usual, we will conduct this call with first management reviewing the company's results followed by a Q&A session. I will turn the call over now to Vinay. Please go ahead.

Thank you, Shahan. Good day, everybody. Welcome to the third quarter 2025 results call of the Qatar Islamic Bank. We'll quickly take you through the highlights for the results for the 9 months ended 30th September 2025. We are pleased to inform that QIB reported net profit attributable to shareholders of QAR 3.45 billion for the 9 months ended 30th September 2025, representing a growth of 5.8% against the same period of the previous year. The net profit attributable to the shareholders for the third quarter of 2025 was QAR 1.28 billion, representing a growth of 6.7% against the corresponding quarter of last year. Total assets of the bank grew by 6.9% over December 2024 to QAR 214.7 billion and by 8.7% compared to the same quarter of last year. The core activities of the bank represented by financing and investing activities continued to grow in the third quarter of 2025. Financing assets, primarily driven by an increase in private sector credit now stand at QAR 131.9 billion, representing a growth of 3.3% against the same quarter of 2024, and 5.3% against the December 2024 levels. Investment securities have now reached QAR 60 billion, an increase of 13.2% on a year-to-date basis versus December '24 and an increase of 19.3% against September 2024. Customer deposits now stand at QAR 133.8 billion, up by 7.1% against December '24 and increased by 5.9% against September 2024 as the bank continued to work towards optimizing its source of funding and cost of funds. The financing to deposit ratio of the bank is at 98.6% is one of the best amongst peer banks in Qatar, reflecting the bank's strong and stable liquidity position. The net operating income of the bank after the cost of funding for the net 9 months ended 30th September 2025 was QAR 5 billion against QAR 4.9 billion in the same period of the previous year, representing a growth of 2.9%. Our non-fund income continues to grow with the net fee and commission income at QAR 660 million for the 9-month period of 2025, which is an increase of 6.2% over the same period of 2024. The expenses of the bank now stand at QAR 803 million for the 9 months ended 30th September 2025, with continued efficient cost management, enabling the bank to maintain its cost-to-income ratio at 16% as compared to 16.1% for the 9 months of 2024. The bank has taken advantage of the good operating performance and has continued to build total impairment provisions of QAR 706 million. The bank was also able to improve its Stage 2 coverage ratio to 8.6% as against 6.5% as at 30th September 2024. Stage 3 provision coverage has been maintained at 95%. These actions taken by the bank reflect the bank's strong risk management framework as well as a conservative provision policy. These results demonstrate the bank's ability to generate strong, stable and sustainable profitability for its shareholders with a return on average equity of 16% and a return on average assets of 2.2%. On the capital adequacy front, the bank's capital adequacy is very healthy at 22.2% under Basel III guidelines, giving us sufficient cover for future balance sheet growth. During the current financial year, the bank continued to advance digital transformation by launching new mobile banking features and enhancing our customer experience across all channels. We also reaffirm our commitment to ESG principles, introducing new green initiatives aligned with the Qatar National Vision 2030. Having taken through the key highlights of these financials, we can now go to the Q&A session, and I hand it over back to Shahan. Thank you.

Okay. We can open it up for Q&A, please.

[Operator Instructions] Our first question comes from the line of Chiro Ghosh from SICO.

This is Chiro Ghosh from SICO Bahrain. I have 3 questions. So first one is on the NIM side. Although it has stabilized over the last couple of quarters, but it has broadly been on the downward cycle. I was just looking at it, I think it's close to its -- to your all-time low zone. So if you can give some clarity on how to see the NIM going forward? And how are you placed in a scenario where we expect at least 2 rate cuts this year and maybe 3 or 4 next year. So how are you placed on the NIM side of it? Quarter -- my second question is related to your balance sheet growth. So quarter-on-quarter, the loan growth has been quite lackluster as well as the deposit accumulation has also been tepid. So how should we see it again going forward? Is there enough borrowing demand from the corporate side and the retail side of it? And again, related to the deposit accumulation side of it, how do you see it going forward? And the third one is not a big part of it, but the fee income quarter-on-quarter has not been that significant. How should we see the fee income? So these are my 3 questions.

Thank you, Chiro. So going on the NIM side, again, I think what we have said is that our NIMs, we believe are fairly -- we expect it to remain fairly stable. The quarter-on-quarter numbers will -- cannot give you the proper direction because of the timing of the rate cut and the repricing cycle may not be always matching on the asset side and the liability side. Overall, our direction remains that we believe our NIMs will continue to remain fairly stable as we keep going. If you take on an annualized basis, we are not expecting any major impact on the rate cut. Whatever be the rate cut impact on the asset side, we believe that should also help us on the funding side as well. So in general, we have remained NIM neutral even during the rising interest rate environment as well as in the rate cut environment as well, we don't see much impact. On the balance sheet side, again, we are still broadly in line with our yearly target that we had given where we had said that we expect the overall loan book to grow at around 5% to 6% for the year. I think we are almost there. I think there. The reason we would not like to make any change to our revisions because, as you know, that while our share of public sector lending is small, we still could see some repayments coming from there or there could be drawdowns on that side. So that's one area where we do not have much of visibility. But overall, our private sector credit has grown in the range that we had talked about. One quarter, you're looking at Q3, which is normally a bit of a slower quarter given the fact that holiday seasons and everything coincide. So overall, we still maintain our annual target and there's not much. In terms of the deposit accumulation, I'm sure you're asking one of the wrong banks, the wrong question with the loan-to-deposit ratio of the financing deposit at 98.6%. I'm sure you understand that we manage our deposit growth in line with how our asset growth is going through. So I think we are far more comfortably placed than very many banks in the country. So we're really not worried on the deposit growth side of it. It's still -- I would say it has still overall outpaced -- if you compare to the growth versus last year, it has outpaced the loan book growth. Fee, again, I think, Chiro, we've been discussing this in the past. Quarter-by-quarter, really doesn't change. There are always elements of seasonality that are involved in the different type of fees, and that's what it is. Overall, I think our fees have grown by 6.2% compared to last year, which is a fairly healthy growth if you look at it, that almost everything is operating kind of fee income growth that we have seen.

Just to summarize, so it's all clear. So the deposit is -- strategically, you did not grow it and tried to maintain it in line with the loan growth, if I understood you right.

I'm sure you will understand that if I mobilize the deposit, I need to do something with the deposits, right? So I -- it's a funding tool, which is used. And again, it's not the only funding tool that we have. So we try to see where -- how we can optimize our funding, whether it be through taking bank borrowings, capital -- debt capital market borrowings, interbank borrowings, syndications, et cetera, everything are there. So I said, overall, with the loan-to-deposit ratio or financing to deposit ratio at less than 100%, I think we have enough room to be able to, let's say, adjust the level of deposits that we have to make sure we are optimizing our cost of funding.

And how is that international deposit side of it, that's also within a comfortable level?

Our total international deposits are at this point of time -- just one second, our only 9% of our deposits are outside Qatar. And if you take -- exclude the other GCC, then it is -- if you include the other GCC, then the total within the GCC is 95%, so 94%, 95%. So we are far, far better placed compared to, again, very many banks, if you look at it, even if you want to take the longer-term funding of Sukuk and everything, our total domestic funding is more than 73% of the funding comes from inside country.

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

Yes. Just one question from my end. On the provisions, so we see that there was a QAR 55 million reduction year-over-year. So was it due to some recovery? Or is it like a like-for-like lower provisioning?

If you look at our total provision because at the end of -- if you look at as a bank, we are one of the banks with one of the most comfortable coverage ratios whether you take the Stage 3 alone or if you take Stage 1, Stage 2, Stage 3. So overall, we are fairly well provisioned as a bank. We usually take higher provisions in the beginning of the year. And then we keep adjusting depending upon how the overall asset quality has evolved. You need to take into consideration that we are again done very conservatively and the total impairment that we have done also includes roughly around QAR 383 million, QAR 384 million of contingency provisions that we have taken for any potential tax impact. We still lack clarity on that front because there is no guidelines issued. But on a conservative basis, we are providing. We expect not that we will get an exemption based on meeting the criteria. But till it comes, it doesn't. So overall, if you look at it, our NPL ratios have remained stable. Our coverage ratio on Stage 3 has remained 95% and -- around at 95%. We've increased our allocation to Stage 2. Our Stage 2 coverage ratios have increased to 8.6%. Stage 1 is the kind of, let's say, a provision on good quality portfolio where given the fact that our coverage stands far, far above the market, we have the ability to keep adjusting the coverage depending upon where we sit. In general, there is -- in reality, we have no room to increase on the Stage 1 coverage as such. So we will have to keep adjusting the provisioning level depending upon how the Stage 2 and Stage 3 portfolio evolve, which we continue to improve the coverage and remains fairly stable. Hopefully, I've given you a comprehensive answer to the question.

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

Yes. If I could just follow up on that last point on tax and cost of risk. When might you expect to get clarity over the -- being able to avoid the tax rate? And we can see you've been quite conservative taking these additional provisions in the unallocated division. Should we assume that you continue to do that in Q4 and into next year? Or have you built a sufficient buffer? And then how should we think about your underlying cost of risk as we go into next year and going forward? Consensus has penciled in 60 basis points approximately. In the past, it's been higher than that, but then you've been very prudent as well. So I mean, what should we be putting in our models? Is that the right kind of number for your business? Or would you want to still continue to prudently build coverage, which is already very high?

On the tax side, given a choice, I would have loved the clarity on the 1st of January this year, but we are where we are. We have to wait for when the government will issue the final guidelines. We hope and in all likelihoods, it should be by the -- before the end of the year, but I will not be able to comment on something that is beyond our -- like the way you are waiting, we are more anxiously waiting to get clarity so that we know what we can go ahead and do with -- how do we see our liability and tax provision. On the -- and going forward, if no clarity comes, then we will continue to build -- be conservative, right? I think the Board and the management team are very clear that we want to be prepared even if there is a slightest possibility that we have to pay those taxes. Rather than coming up with a negative surprise, it's always good to be in a more conservative scenario rather than be suddenly exposed to something that is potential, but lacks clarity. On the overall provisioning, I would not comment on the consensus and what is the cost of risk, et cetera. Only thing I can tell you is that what we have been doing since the past that if our asset quality has remained fairly stable, we are very well covered. So from the need perspective, I think the cost of risk unless and until the portfolio significantly sees a deterioration, we really don't see a significant increase in our real cost of risk requirements. However, as we have been doing in the past, if we have good operating performances, we will continue to build provisions. We can build it as a cost of risk on financing, if required, we can look into some of our other assets, if required, and we can continue to be conservative, et cetera. So in general, on a need basis, even if you look at this year, almost majority of it has been allocated to Stage 1, right? So if you look at it from the need perspective, it is -- the cost of risk is more driven by what is our operating performance rather than real requirement of the cost of risk. That's all I can tell you. We, as a bank, given the high coverages that we run, we do have a bit more flexibility in terms of how much of coverage we want to increase on Stage 2, on Stage 1. Stage 3, we are already at 95%. So we are very well covered on that perspective. So it's all going to depend upon how the asset quality evolves and how the operating performance of the bank continues to move as we keep going forward.

If I could just ask a quick follow-up. If it turns out as we hope that you don't need that provision for tax, what should we imagine you do with it? Are you more likely to transfer it into general provisions rather than release it back into the P&L?

We have the ability to do both, and we will take a call as a thing happens. I don't want to preempt a scenario, which I do not control on. So we'll cross the bridge when we reach there. So at this point of time, if you ask technically, we can do either of the 2, right? I can just reverse it to the P&L or we continue to take the conservative approach and we allocate it to other assets of financing, et cetera. But at this point of time, we continue to maintain that till we have the clarity, we really don't know what we're going to -- what's the next step going to be on the tax provisioning.

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

This is Murad Ansari from GTN. A few questions from my end. Just a clarification. I mean you mentioned that you've -- your tax liability, as you presented in the notes to the account as well that so far, if that was applicable, it would have been a roughly about QAR 380 million of tax charge. Is that the amount of provision that you have created? Because I mean, if we look at that, then it seems that over the past 2 quarters, your provisioning has been -- majority has been on account of these tax-related provisions and there's hardly been any increase in -- or hardly any -- a small amount on credit provisions. So just wanted to get a confirmation or understanding on that. My second question was on the deposit split. So when we look at your deposit split, as you mentioned as well, roughly about 9% is outside of Qatar. Should we see this as the typical nonresident deposit base, which gets repriced annually? And also the domestic term deposit base, if you could kindly just give a sense of what's the repricing profile? I mean, how quickly do these -- what's the tenor on these deposits? Are these quarterly, semiannually or annual maturity kind of deposits? Yes, those are my 2 questions.

Thanks, Murad. So if you look deeper into the ECL disclosures that we make, you will see that the total provisions that we have created for financing year-to-date is roughly around QAR 312 million, give or take. QAR 300 million. And we have taken QAR 394 million in other provisions, which includes roughly QAR 383 million of tax provision. So as I said -- as I mentioned earlier, given the fact that we have high coverages already on our portfolio, we have the flexibility to say what is the incremental cost of risk that we can take on the financing book. So that's -- your assumption is fairly correct that if you take the total provision, a larger part of it has been allocated to tax provision, okay? In terms of the deposits, the NRDs, they all have different maturities. Very, very, very few are there, which are 1 year. Majority of them get are anywhere between 1 month to 6 month deposits are there, whether you take the non-resident deposits or whether you take domestic deposits, that's the average maturity profile of term deposits that you will see. So certain corporates, they keep even further shorter deposits of 15 days, 1 month, et cetera. While if you go to the private banking side and there, you see more of a 6-month profile coming in, okay? So in general, I would say the average duration of the deposit book would be something around 3 months kind of a thing, 2.5, 3 months.

And this would be applicable for the international deposits as well, roughly, give or take?

Yes, roughly. Give or take. Anyway, the larger part of our deposits is domestic, right? 91% of it.

Just one question. I mean, on your Stage 2 loans, I mean, we -- there was a reduction last year in terms of the absolute amount of Stage 2 loans. Is there any move towards further reclassification that we could expect over the coming -- I mean, are there any accounts that...

There is a room for us to look into it. But at this point of time, I don't think so that we are doing any extensive exercise to do any reversals, et cetera. Again, we've been a bit more transparent in the fact that keeping financing in Stage 2 allows us to allocate more provision. And that's why if you will see we have allocated more ECL, our coverage has gone up to 8.2%. While if you are in the Stage 1, even though we are at 3%, you -- so we prefer to remain conservative, continue to remain -- continue to allocate the provisions that we have built up. There is a room. But at this point of time, we do not see any major exercise that we are conducting. We are fairly comfortable with the levels which are there. We know what is sitting under the books. Not really worried about significant, let's say, further deterioration, but we would like to wait before we take any exercise to further upgrade.

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

Well, a couple of questions from me. The first one is, could you update us on this subsidiary sale that you're planning to do? Where do we stand, right? Obviously, you reclassified it as held for sale. Can we expect it this year or not really? I think the previous guidance was -- will be finalized in the third quarter or fourth quarter of this year? That's the first question. And secondly, you come across as a bank with very low write-offs, right? And they're very infrequent compared to others. And I think the question is, why is this the case? And is it reasonable to expect some write-offs, big write-offs in the future, right? Is it that other banks need to pick up their -- improve their coverage targets on some common corporate exposures and that would kind of trigger a write-off or write-off are highly unlikely on these exposures. What's your view here?

On the first thing, on the subsidiary sale, we continue to keep our, let's say, guidance that it will -- we expect it to complete before the end of the year. There were certain regulatory requirements to be made, changes in the Articles of Association of the subsidiary, et cetera. So that has been done in the EGM. So a couple of more steps are left, and we expect it to complete before the end of the year. So that guidance continues to hold. In terms of write-off, I really don't get the explanation you gave. In fact, we don't do write-offs because we don't have too much of NPL. So let's be very honest. Other banks do write-off to bring their NPL ratios under control. And unless and until that bank has got a 100% coverage that is going to deteriorate their coverage ratio rather than improve their coverage ratio because to write off, they -- if -- let's take an example of a bank that is running a 50% coverage, in order to write off, they will have to first either allocate incremental 50% or they will do a write-off and the overall coverage will drop. So the coverage -- if some bank is telling you that they are doing it to improve the coverage, it intuitively doesn't add up. Write-offs are done by banks who are running high on NPLs and they want to keep their NPL levels under control. Our NPL ratios are fairly much under control. We are well covered. We are at 95% coverage. So there is -- we don't get -- we are very well covered. Our NPL ratios are at very, very healthy levels. So we tend to be, again, be conservative and write-off only when we believe that we have exhausted all the ways and means of recovery, only then we go ahead and do a write-off. I hope that answers.

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

This is Bijoy here from QIC. My question is on your cost of risk. So if you -- looking at the market, we see the cost of risk barring a few banks, which have higher cost of risk. Generally, the cost of risk is around 65 basis points. So -- and you are quite low, around 37 this quarter. So trying to understand how do you expect the cost of risk to move up in line with the market? Or is it going to remain in the similar range for the coming quarters?

Joy, just to say, I don't know -- I guess you would have joined late because I already answered the same query with [indiscernible]. I don't comment on the market, and I don't comment on what is the consensus. All I can tell is that from our own bank's perspective, I think our NPL ratios are well under control. We continue to improve our coverage on Stage 2 portfolio. We are far more healthily covered in terms of Stage 1 compared to overall market. That gives us from the fact the need based, the cost of risk remains low. However, we continue to remain prudent, whereby if we have good operating performances, we will continue to build provisions.

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

Am I audible?

Yes, Waruna. Go ahead.

Hemang. So I have...

Gourang. Sorry to correct it, Gourang. My name is Gourang, not Hemang.

I have a couple of questions. One is on the expenses. Your expenses, I mean, this year has been under very good control. I just want to understand how things will -- how do you expect things to pan out next year, I mean, in terms of cost trajectory? And secondly, on the interest rates, as the interest rates decline, in terms of your loan structure, do you expect any kind of interest rate flows to set in, which can be helpful in the low interest rate environment? So those are my questions.

In terms of the expenses for next year, all I can say is that we're still in the planning phase for next year. So I don't have the complete visibility. But in general, as we have told you that we as a bank have -- we are a very cost-conscious entity. While we continue to invest in our technology, especially on the digital side of it, on the mobile banking, on initiatives that either help in improving revenue or bring down our other operating expenses. So we continue to work on that. I think we are operating at a really very highly efficient levels. I think we would love to maintain these ratios. Overall, if the revenues continue to grow as we keep going forward, we still expect our cost-to-income ratio to continue to remain around 16% range that we have seen so far, 16%, maybe marginally going up, but nothing significant from that perspective. On the financing book of it, yes, we do have certain financings that are there that have got floors. But I still believe that the rates are still fairly high at this point of time for those floors to kick in. I do not have any view in terms of what is the next year's rate cut because I think there are multiple factors. I'm sure even the best of the central bankers in U.S. are struggling to say what would be the right level. So I would not comment on where the cuts would land and where the rates would land. But in general, as I explained at the beginning that we expect our NIMs to be fairly stable, maybe marginal impact, but nothing that material enough for us to really worry about at this point of time.

Our next question comes from the line of Dan Mikhaylov from Vergent Asset Management.

Congratulations on a great set of results. I just had one question regarding capital returns. We're now in a position where the bank is operating at, I think, 18.5% CET1 ratio and there's potential upside to capital generation from the sale of QInvest into year-end and the reversal of tax provisions. Given that the bank's historical payout ratio is more like 45%, 50%, kind of is it -- are you guys starting to think about potentially raising the payout ratio or sort of increasing capital returns going forward given that the capital generation is very strong and there's potential upside to it from the things that sort of have been discussed on the call?

Thanks, Dan. Yes, you're right. So we are fairly well capitalized, and that gives us the room that if you want to improve the payout ratios or have any other, let's say, capital management exercise, we do have an opportunity to do that. But as you rightly put on yourself, right, to say that there are some areas where there's still lack clarity, especially on the taxation, et cetera. So we would like to have more clarity that comes on that. As regards -- as a management team, we offer the Board different scenarios showing our ability to improve payout ratios if required. However, that prerogative of what the final payout continues to remain with the Board. As regards to affordability, yes. And in general, if not this year, but at least in the medium term, if our internal capital generation continues to remain strong, there definitely will be a scenario whereby we will have to take a call as to what do we do with the incremental capital, whether we deploy it through some more aggressive asset growth or whether we repay the shareholders through dividends or buybacks, et cetera. But at this point of time, we still are generating very healthy return on equity around 16.5%, 17% ROE on an annualized basis. So I think we still have some more time before we can really take further clarity, especially given the fact depending upon what the tax guideline comes, that will give us also clarity in terms of how our inorganic growth strategy would really have impact on because if I go outside the country and if I get taxed because of that, then those are implications that we need to take. So there are lots of ifs and buts at this point of time to really give a view on the longer-term capital structure. But at this point of time, yes, we do sit in a scenario whereby we can afford to improve the payouts. Whether that will happen or not, as I mentioned earlier, it is all a Board's prerogative. And as a management team, I can give you limited guidance on that. I hope that answers your query, Dan.

There are no further questions. I'll now turn the call back over to Shahan for closing remarks.

Okay. Great. Thank you, Gourang, and thank you, Vinay, for the update. And we'll pick this up again next quarter.

Thank you, Shahan. Thank you, everybody.

The meeting has now concluded. Thank you all for joining. You may now disconnect.