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

Thank you for standing by, and welcome to Qatar Islamic Bank Q3 Results Call. I'd like to remind everyone that this call is being recorded. [Operator Instructions] I would now like to turn the call over to Shahan. Please go ahead.

Hello, everyone. I want to welcome you to QIBs Third Quarter and 9 Month 2026 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 IRO. 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.

Thanks, Shahan. Good afternoon, and welcome, everybody, to the third quarter 2026 results of Qatar Islamic Bank. I will quickly take you through the highlights of the results for the 9 months ended 30th September 2026. We are pleased to inform that we reported a net profit attributable to shareholders of QAR 3.525 billion for the 9 months ended 30th September 2026, representing a growth of 2% as compared to the same period for the previous year. The net profit attributable to shareholders for the third quarter of 2026 was QAR 1.3 billion, representing a growth of 1.6% as against the corresponding quarter of last year. Total assets of the bank grew by 6.5% over December 2025 to QAR 235.5 billion and by 9.7% as compared to the same quarter of 2025. The core activities of the bank represented by financing assets continue to grow in the third quarter of 2026. Financing as is primarily driven by an increase in corporate credit now standard QAR 150.7 billion, representing a growth of 16.1% as compared to December 25 and a growth of 21.9% as compared to the same quarter of '25. Customer deposits now stand at QAR 145 billion, representing a growth of QAR 2.2 billion as compared to December 2025 and higher by category of QAR 11.1 billion or 8.3% as compared to September 2025. The bank continues to work towards optimizing its source of funding and cost of funds. The net operating income of the bank, which is the net of profit attributable to equity holders, for the period ended 30th September 2026 was QAR 5.2 billion as compared to QAR 5 billion in the same period of last year, representing a growth of 3.9% as compared to the same period of 2025. Our non-fund income continues to grow with the net fee and commission income at QAR 700 million for the 9-month period 2026. This is a presence of 5% growth over the same period of last year. The expenses of the bank announced standard QAR 845 million for the 9 months ended 30th September 2026, with the continued emphasis on efficient cost management enabling the bank to maintain its cost-to-income ratio at 16.2%, which continues to remain the lowest in the Qatar banking sector. On the asset quality front, QIB was able to manage the ratio of nonperforming assets to total financing assets at 1.51% and maintain a healthy coverage ratio for nonperforming financing assets at 95.1% as of 30th September 2026. The bank has continued to build total impairment provisions of QAR 367 million. The bank was also able to improve its Stage 2 coverage ratio to 9% as against 8.6% as at 30th September 2025. These actions taken where the bank reflect the bank's strong risk management framework as well as the conservative provision policy. The bank continues to loosely monitor the evolving geopolitical situation and undertaking on these assessments to evaluate any potential implications on operations. The bank's capital adequacy ratio is very healthy at 23.6% under Basel III guidelines, giving us sufficient cover for any future balance sheet growth. Having taken through the key highlights of the financials. We'll now go on to the Q&A session, and I'll hand over to Shahan. Thank you.

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

[Operator Instructions] Your first question comes from the line of Rahul Rajan from Bank of America.

A few questions from my side, please. Firstly, on the loan growth. In the previous earnings call, you mentioned that the loan growth in the second half is going to be flat, but yet we have seen around more than 2% quarter-on-quarter loan growth in 3Q. So what is driving this loan growth and -- so that's number one. And within that, if you can also help us understand what's the level of acceptances. And how do you see loan growth through the rest of the year? So that's number one. Secondly is from a NIM perspective, it has remained quite volatile in the last 2 quarters. How should we see NIMs through the end of the year? And I think the volatility is also coming from the investment book when I see the yields on your investment book. So if you can sort of shed some light on that? And how do we see NIMs going forward, given the proportion of government lending has been consistently increasing in the overall loan book? And thirdly is on cost of risk. We've seen that the cost of risk is -- I mean it's almost mill in the third quarter. So how do you see coverage ratios from here? And how do you see cost of risk also in the fourth quarter and also getting into 2027? So these are 3 questions from my side, please.

Thanks, Rahul, and good day, everybody. This is Gourang Hemani, the Chief Financial Officer. Addressing your questions, Rahul, yes, we had mentioned the fact that we expect the second half of the loan book financing book to remain flat. That was on the back of the natural growth that we achieve every quarter and some sell down that we were expecting on some of our syndicated financing that we have done in the first half of the year. So what we have seen in the Q3 is that we saw the natural growth happening. So the -- excluding acceptances, the growth has been roughly around QAR 2.7 billion out of the total growth that you see and that's more coming from overall from the different sectors that we -- in the private sector area that we are normally doing, including personal banking and some of the other key corporate banking areas like industry, real estate, et cetera. We're still working on the fact that we expect some of the syndicated financing to be having to be reduced. However, some of it is to be acquired by some conventional banks, which is going to -- which is taking a little bit more time in terms of how we structure it, et cetera. So it's still in the pipeline. So I would say maybe our year-end growth would be -- financing levels would be at these levels or maybe marginally lower than what you see now. In terms of the NIM, the fact that you mentioned that you're seeing the volatility, I think that is very normal in the way the interest rates are moving in the market in general. We've seen a fed hike in this quarter, which was matched by the QCB increasing its lending rate and the deposit rate. So it's always a question of we have been mentioning. There is a question of timing the repricing of the deposits on the funding and the repricing of the assets are never synchronized. So there is always a period whereby you see one moving ahead of the other and causing the NIMs to work in a little bit kind of on let's say, a linear fashion like the way it would be in the past. So overall, I think we had already given an indication that given the -- in the previous call as well that we expect the teams to contract marginally because of our increased share of government-related financing. I'm sure you would appreciate the same given the fact that our government-related financing has increased share of government and related financing has increased from 7.5% to 14%, 7.5% in December to 14%. Even the growth that you see in the real estate sector, a large part of it, almost more than 80% of it is related to government-related entity book it is classified as a real estate because of the nature of the activity. So in general, overall, 85% of the growth, excluding acceptances this year has been with government and government-related entity that is going to put -- has definitely at lower margins. Moreover, I think and rightfully so, the bank has been working to continue to maintain and liquidity buffers, given the way the current geopolitical situations are, and it's something that the bank has not shied away by trying to pay a little bit more, whether it be for the deposits or whether it be for securing bilateral and funding from the banks, et cetera, in Q2 and Q3, so that we are able to shore up our liquidity ratios. Just to give you an idea that our LCR is north of 175%, NSFR is north of 125%, excluding acceptances, our financing to deposit ratio is at 100% or below 100%. So we believe it's a decent compromise to be made in the short term to be able to better manage the challenges that come due to the ongoing geopolitical scenarios where we expect, I think we still believe on a quarter-to-quarter, the NIMs will continue to be a bit more, let's say, volatile because of the fact that the if Fed does follow up with one more hike, then again, we need to look at the timing of the hike before the end of the year. And then next year, we also believe there's at least one hike coming next year, followed by maybe one cut by the end of next year. So that's the management view at this point of time based on more or less in line with what the markets are expecting. This is going to create -- overall, on a full year basis, we continue to maintain that our NIMs for this year would be about 8 to 9 basis points or maybe slightly more because of the longer-than-expected geopolitical challenges that are there. But in general, for next year, we believe the NIMs to remain stable overall to what we achieved in the second half of the year. Cost of risk. The third question, which you asked, Rahul, I said, for us, the cost of risk is always a function of 2 things. We always, as a bank tend to provide much, much larger amount in the first half of the year than the second half of the year. Overall, we -- our -- while our absolute nonperforming financing has remained flat, though the nonperforming financing ratios have come down the absolute level of NPFs have remained flat. The ratio is coming down purely because of the fact that our financing book has grown significantly over this year. However, the NPL -- the Stage 3 coverage ratio is maintained at 95%. The Stage 2 coverage ratio is maintained at 9%, Stage 1 coverage ratio, excluding the acceptances stand at 2.89%, I think was vis-a-vis the industry average of 0.4 or something around that level. So we are very healthily provided. We need to continue to evaluate as to how the asset quality moves forward. At this point of time, we believe that our risk management policies and provision policies remain very prudent with enough buffers in place to be able to absorb any material changes in asset quality if it were to happen. So far, overall, we've either seen in the market or not for us, whereby the ongoing conflict has resulted any major implications. The private sector GDP, if you look at the numbers that have been recently published continue to remain pretty healthy. The nonhydrocarbon GDP has grown by 2.8%. The hydrocarbon GDP has definitely shown a reduction as expected given the way it is. So overall, we being a private sector bank and with the private sector still looking pretty healthy. we do not believe any major pressures on cost of risk. However, we continue to remain attentive and if required, we'll build adequate provisions, if required. I hope that answers your queries, Rahul.

Yes, absolutely. Sorry, just a follow-up on the cost of risk side. Now given such high level of provisions that we are currently sitting at, how should we see management's intention towards coverage or put the other way around. Can we see lower levels of cost of risk for an extended period of time? Or do you have any certain targets of NPL coverage or Stage 3 coverage that you would like to maintain? Or will the bank actually be in a period where they could have a lower cost of risk and therefore result in better net income growth?

Again, we will continue to remain very attentive to how the impact how long these geopolitical issues continue? And what are the longer-term implications of it? If you are asking, are we going to reverse any cost of risk to be able to maintain the bottom line, no. However, the speed at which we build incremental cost of risk is definitely something we take into cognizant of the fact that we are well provided. We have been consistently -- stage 3 coverage has been above 95%. So we continue to remain attentive for the fact that we continue to maintain decent coverage ratios on the Stage 3. Is it -- is there a need immediately to build more provisions and cost of risk? No. Do we believe we will continue to build the cost of risk? Yes, it depends upon how the economic scenario evolves, right? We are a very prudent I think we take a lot of pride in our prudent risk management practices that we follow and we will continue to remain attentive to both maintaining a good risk profile as well as generating a healthy return to our shareholders. So there is no I wish we could have a clear guidance to you, but as you would appreciate, it's a market which we see conditions that we have not seen in the past. So we will remain attentive I don't have any clear guidance to give to you. But as I said, we continue to remain very prudent. But at the same point of time, we are cognizant of trying to maintain a healthy return to our shareholders.

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

A couple of questions from my side. First is, I understand the strategy now appears to be moving more towards public sector lending. So that has also most likely helped with lower cost of risk. And also in the past, as you said that you have been building up the reserves. So going ahead, I just want to get a sense what should be factoring as a normalized cost of risk? I mean future year, what should be -- our model should be a normalized cost of risk some kind of clarity on, that would be helpful. My second question is on the NIM, which you very clearly made us understand that why the NIM came off. But with more lending to the government sector to be the strategy going forward. What would be required for NIMs to pick up? Would geopolitical -- easing of geopoliticals concerned, will it lower your funding cost, that would push up the NIM? I mean just wanted to get a scenario where your NIM can actually go up from here on. And third is, if you can give us some ground reality of the borrowing appetite, both from public sector and private sector entities. How is the [indiscernible]. These are my 3 questions.

On the first question, Chira, in terms of what is the strategy of the bank has always been in the past as well that we're being the #2 bank in the country. We never had a fair share of public sector exposure on the lending -- on the financing side of it, we usually used to take our exposure on the government side through our Sukuk portfolio. As you know, more than 86% of our investment securities is state of Qatar Sukuk. So we were there. This is more of a natural extension of our relationships that we have been building with various government-related entities and overall as a government sector. Normalized cost of risk. I really don't know what to tell what is the normalized cost of risk because even if you look into the last couple of years, majority of the allocations have gone towards Stage 1 and Stage 2, so right? So the Stage 3 ratio and the absolute level of Phase 3 has been much better managed than overall. So if the -- if we see that the impact of this geopolitical issue is going to have on the asset quality, then we will need to improve the allocations to Stage 3 as we keep. Even if you look at it this year, even whatever we have built so far, most of it has been allocated to Stage 1 and partly to stage 2. However, that gets more normalized as we go into the quarter 4, whereby we finalized the overall provisions, et cetera. So as I said, I really don't have any specific guidance to give you. All I can tell you at this point of time, we are well provided for. We continue to monitor the evolving situation and we'll take appropriate action at that point of time, right? For the needs to go up, I think it is at this point of time, it is more about the fact that we have a very fairly healthy NIM and the target is to maintain the NIM as we keep moving forward. We -- as I explained, the bit of reduction has come from the fact of the exposure to public sector the cost of funding has gone up because of the way the geopolitical situation has evolved just to put into perspective, just 2 days before this war broke out, we were able to issue Sukuk for $750 million at 4.4%. I think today, U.S. treasury at 5 years is around 5% level, okay? So it's an evolving market situation, not only for us but for everybody. I think at this point of time, the positives overall for the, let's say, positive catalysts, while I wish I could give you, I think the more likely scenario for next year is the fact that because even if this geopolitical situation normalizes, for it to continue to reflect into your NIMs will have a bit of a lag effect, right? So we believe that -- and we -- and the way the markets are looking at the U.S. treasuries and the medium-term rates in U.S. are not going down very quickly at this point of time as well because of the inflationary pressure. So the best case scenario at this point of time is that if the Fed increases the rates and if QCB lending rates follow, we should be able to maintain the NIMs and we might have a marginal pickup unless and until it could get eaten up also because of the cost of funding pressure if the liquidity remains tight overall, right? So from that perspective, on the borrowing demand, I really can say that if you look at the industry numbers, I think the overall financing book domestically has been marginally lower, while there has been an increase in the international lending by the banking sector for us, I really don't see how I can complain in terms of the borrowing demand given the growth that we have seen. We've grown by almost $18 billion, excluding acceptances this year. So I think we are pretty content with the growth that we have achieved. I think it's definitely been a very positive story for the bank so far. I think a bank like us, which has got a strong liquidity position and also strong capital positions took advantage of the fact that we were able to step in and provide the required funding needs that the system had at this point of time? The consumer lending continues to -- as I said, the private sector side of the bit is still going as normal on the nonhydrocarbon GDP growing up by 2.8%, as I mentioned earlier, continues to generate a normal organic demand. But new projects, et cetera. We don't see anything much happening. So -- and rightfully so, everybody, even the corporate borrowers, et cetera, look for the right clarity of the impact and the period of this geopolitical challenge to really take a call and initiate any major projects. So we are confident in terms of that the market is in a pretty, let's say, well-balanced position at this point of time. However, there will be opportunities for us. I think we have really participated and taken our share of it and don't see the need to grow significantly at this point of time.

Over the 3, 4 months, is it fair to assume you'll still stick to more on the public sector side or real estate which are backed by public sector in the next 3, 4 months?

Not at this point of time. These are -- some of them were large projects related funding where we don't expect them to get repeated again back in Q4. So these were something that is being worked upon and carried forward from 2025.

Your next question comes from the line of Ejayan Al-ahbabi of Ryan Investment.

This is Lee from Orion Investment. Just want to follow up on those questions on the financing side. Looking at your slide, financing sector is about -- over on the government side about 12%. I understand from the call already, a lot of the growth in financing assets are coming from the government side. How large do you think this pie will grow in terms of government and GRE financing as a percentage of your pie? That's the first question. The second one is, if I look at the real estate side, it's of which we mentioned that a large part of the growth this year on the real estate was also due to the government side. Would you be able to give the split of that pie on the financing asset? How much of that 24% is -- belongs to the private sector? And how much of it is to the government sector?

Okay. In terms by increasing for government sector. I think I just answered Chira that we -- what we have seen at this point of time, we are fairly content with the growth unless there's some decent opportunity that comes. So at this point of time, we don't expect any major growth coming from now until the end of the year. In terms of the estate, I think more than -- I also mentioned it earlier as well, more than 85% of the growth that we saw in the real estate sector, more than 80% out of growth that we saw in the real estate sector also came from government-related entities. So that's the major one. Other than that, majority of it is in the private sector being including individuals, mortgage financing, et cetera.

And given the current environment, and of course, seeing that there is no -- I mean your nonperforming financial assets quite stable at about 1.59%. Given the current environment with the geopolitical risk, is there any concerns on the real estate side, given that it's quite a large chunk of the total book?

I think what you see that our real estate is roughly, if I net off the deferred profits, et cetera, and exclude the impact of acceptance, overall, we are about 22%. This is more or less in line with the industry average, especially for the banks in the private sector. So it's not really large vis-a-vis the peers, this is the general distribution that you would see in the market. Are we concerned? No, we are not as concerned because of the way the real estate market inside Qatar, you are in Qatar, so you would really also understand that it is not significantly dependent on the foreign investors or foreign flows, even the expatriate ownership is very limited. . So from that perspective, we don't see any major sell-down pressures in the real estate market, et cetera, that can really cause the real estate prices to go down and could pressure and could put pressure on the financing of it. So we are fairly confident at this point of time that we don't see any systemic risk coming in into the real estate sector lending of financing at this point of time.

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