Qatar National Bank (Q.P.S.C.) (QNBK) Earnings Call Transcript & Summary

Good afternoon, good morning everyone. My name is Aybek Islamov. I'm an emerging markets, EMEA, financials analyst at HSBC. I'm very glad to host you today at Qatar National Bank's Third Quarter Results Conference Call. With us on the call, we have Ramzi Mari, Group Chief Financial Officer; Noor Al-Naimi and Mark Abrahams of Treasury and Trading; as well as Durraiz Khan of financial planning strategy. With no further ado, I'd like to hand over the call to Mark Abrahams. Mark please go ahead.

Thank you very, Aybek and to HSBC for hosting our Q3 2023 call. Before we begin, it is customary to remind you all that this earnings call is for investors and analysts only. And any media personnel should please disconnect now. I will begin by giving an overview on macroeconomic environment, then I will cover QNB's financial results for the 9 months ended 30th of September 2023. And finally, we'll open the floor to Q&A. The global environment continues to be affected by the negative consequences of excessive post-pandemic policy stimulus and geopolitical tensions. Despite a recent moderation of global inflation, price pressures are still high in most major economies, justifying higher policy rates for longer. This slows down global growth and increases the likelihood of financial instability. Elevated oil and gas prices fuel robust, fiscal and external revenues in the GCC, resulting in large surpluses and execution of large investments projects. This adds to the momentum created by structural reforms. All in all, the GDP growth in GCC was expected to remain favorable, mainly based on stronger hydrocarbon output. Also for Qatar, the macroeconomic environment remains very positive. Qatar continues to lay the foundations for GDP growth over the medium and long term through investment, diversification and stronger private sector engagement. On the non-hydrocarbon front, following the successful preparation and organization of the 2022 FIFA World Cup Qatar. The country further consolidated its position as a regional and international hub for business, investments, commerce, tourism and culture. This accelerated the execution of Qatar National Vision 2030 and assisted in the ongoing transition towards a knowledge-based economy. On the hydrocarbon front, tailwinds from investments and increasing gas production will drive economic growth with 6 new LNG trains planned under the flagship North Field expansion project, one of the largest capital expenditure projects in the region and industrial engineering projects in the world. This investment is expected to increase Qatar's LNG production by 64% to 126 million tonnes per annum, contributing to almost 1/3 of global LNG demand. The project will include an equivalent expansion of Qatar's refining, downstream and petrochemical capacity. Positive spillovers from these projects will combine with diversification efforts and structural reforms to boost economic activity and spending in the broader manufacturing and services sectors. The foundation stone for the project was formally laid just last week. We expect domestic activity to remain strong with a GDP growth of 2.2% in 2023 and 2.5% in 2024, according to consensus estimates. As a result, the economic expansion continues in Qatar while the banking sector is resilient and healthy presenting significant growth, ample liquidity, adequate levels of capitalization, high asset quality and robust profitability. I will now move on to QNB's financial results for the 9 months ended 30th of September 2023. Key financial results were as follows: Net profit was QAR 11.9 billion or USD 3.26 billion, a healthy increase of 8% compared to last year. Robust revenue growth resulted in an increase in operating income to QAR 29 billion or USD 8 billion, up 13%, demonstrating QNB Group's success in maintaining growth across the full range of revenue sources. QNB's cost-to-income ratio remained very strong at 20%, which is considered to be one of the best ratios among large financial institutions in the EMEA region. Total assets are at QAR 1.186 trillion or USD 325.8 billion, up by 4% from the same period last year. Loans and advances reached QAR 815 billion or USD 224 billion, up by 7%. QNB Group remained successful in attracting deposits, which resulted in an increase in customer funding by 4% from September '22 to reach QAR 822 billion or USD 225.9 billion. The group's loan-to-deposit ratio remained stable at 99.2%. QNB Group's ratio of nonperforming loans to gross loans stood at 3%, reflecting the high quality of the group's loan book and the effective management of credit risk. In addition, the coverage ratio on Stage 3 loans is at 100%. Total equity increased to QAR 109 billion, up by 2% from September 2022. The bank's capital adequacy ratio at 19% is comfortably higher than both QCB and Basel III requirements. We will now turn to questions and answers. Thank you.

Thank you for your presentation, Mark. [Operator Instructions] I'd like to hand over the question line to Waleed Mohsin from Goldman Sachs.

A couple of questions from my side. Number one, if you could talk a little bit about the underlying trends for net interest margin and how sustainable it is. It seems that a lot of the improvement is driven by Turkey. I wanted to understand if this is mostly because of CPI linkers and you've kind of readjusted your CPI assumption for the third quarter and also retroactively for the full year. So if you could talk about that, like how much of this is sustainable? What's your kind of outlook on NIM, that will be very helpful. Secondly, on cost of risk, you were expecting some sort of an improvement. We saw that, how sustainable is it? And then if you are -- I don't know, how are you thinking about your guidance for the full year in terms of cost risk, NIM and profitability?

Okay. Let's start Waleed Mohsin, question by question. Net interest margin, how sustainable it is. We are seeing good improvement in the third quarter, around 3 basis points to reach 257 basis points. I expect by year-end, we are going to be close to that ratio between the 255 and 257. I agree with you, CPI income was a good reason for the increase. But at the same time, we saw a good increase in Qatar, mainly in Doha, mostly because of the reflecting the 3 increases that took place on the Fed rate on the loans starting from 1st of July because we have a good chunk of our assets are priced 6-month LIBOR, and many of these are priced 1st of January and 1st of July. So the 3 changes that took place or the 3 increases were reflected only on 1st of July. So the increase is not only in Turkey, but Turkey, Doha and even Egypt. Cost of risk, as you mentioned, we set at the beginning of the year and in March and June that we expect cost of risk to drop. Now we are at 96 basis points. How sustainable it is? We think by year-end, we are going to be between the 95 basis point and the 98 basis point, which is -- which means a big drop from where were we last year, which we, because we were at 111. How we see this progressing into next year? I think we are going to be at the same level, even lower -- marginally lower by 5, but not more than 10 basis points. Now in terms of guidelines, for the balance sheet, it will be lower than what we have originally gave. We expected this stage balance sheet to grow between 2% and 4%. P&L will continue to grow as we promised at the beginning of the year, between 7% and 9%.

Just to follow up on this. So, you said that there's good improvement, obviously, in the NIIs, and from your comments, it seems it's sustainable. So I mean if I look at the difference between second quarter and third quarter, it's almost QAR 1 billion improvement in net interest income. I mean, is that kind of run rate sustainable, something close to QAR 8 billion per quarter? Because there's an offsetting adjustment in the hyperinflation line right?

First quarter, [indiscernible]. It really depends on how many increases we are going to see during the remaining period. Everyone is talking about another one increase. So technically, in the fourth quarter, we are not going to benefit similar to the third quarter from the increases that took place in the last -- from January to June. So even if there is an increase, that increase we will see in next January, not in the fourth quarter. Now -- and the other important factor is the CPI linker. It really depends what the inflation rate is going to be in Turkey. But from what we are seeing, it will continue to be high. And that's why we don't see a drop in net interest income in Turkey. Based on our model, we believe the fourth quarter will be very close to the third quarter in terms of net interest income. Now what will happen next year? There are 20 factors that will impact what will happen next year. Budget-wise, we're still projecting a growth in net interest income between 6% and 8%, which reflects good and healthy progress in net interest income.

The next question comes from the line of Aaron Armstrong.

It's Aaron from Ashmore here. Can you talk a little bit more about the net interest margin outlook, please. So you mentioned the repricing on the loan side at 6-month intervals. Can you talk a little bit more about that, please? And then also on your cost of funding side, how you expect that to progress? And maybe if we think about kind of one more hike or maybe a pause in the beginning of next year in a stable interest rate environment, say, for a couple of quarters, what would you expect your net interest margin to do?

Now, QNB is a corporate financial institution. And that's why you see clusters in the repricing of loans. They are not the same month by month. A big chunk of our loans are priced 6 months LIBOR plus a margin. And many of these, the 6 months happened during January and during July. So what happened in July is that they took advantage of the 3 increases that took place in the first 6 months of the year. So during -- let's assume that an increase took place in April. So these loans from us, we will not benefit from that increase in April, May or June, but immediately in July, we'll start to take advantage of that increase. And that's why, you will see that in January and in July, a big shift in interest momentum based on the increases that took place in the prior 6 months period. I hope this makes it clearer.

That's great, on the loan side. Perhaps on the funding side, could you talk a little bit about the repricing there, please?

The fund -- the repricing of the -- in terms of cost of funding, it is close to that, but of course, it's mixed much more -- the mixing is different. It's month by month. not -- you are not going to see the big cluster that you have seen in loans. So you will see maturity, and there is a lot of deposits that are -- some of them are 1 month, 3 months, 6 months. But if you look at the maturity month by month, you are not going to see major variances between each month and the other.

That's great. And on the deposit mix side, are you seeing deposits shift in favor of higher-cost deposits or it's fairly stable?

I haven't seen major pickup in cost of funding in the last increase. In the last 25 basis point increase, we haven't seen a major increase in cost of funding for QNB. And whether this will continue in the next one, we need to wait and see.

Okay. And why do you think that is?

Because the market is liquid. There is no fierce competition with Qatari riyal funding on the system. And at the same time, we are not seeing major pickup in loans. So banks are relaxed in terms of funding their Qatari riyal deposits.

That's great. And if you kind of look at a stable, say, interest rate environment for a couple of quarters and maybe beginning of next year, does that imply a stable NIM for you or because your assets repriced in these kind of 6-month intervals, there's kind of a catch-up and your NIM could increase when interest rates stabilize?

If interest stabilizes in 2024, I don't expect major change on net interest margin. However, please note that I always said that having an interest margin close to 260 basis points for a bank of our size, close to [indiscernible] QAR 330 billion, is not sustainable for the 3 to 5 years period, especially for a corporate and financial institution like QNB. What I always said is that what is sustainable for an entity at the side of QNB, with a margin between the 240 and 245 basis points. QNB materially benefited from the increase in interest rate in the last year. Now hopefully, if the rate stays at this level, 2024 will continue to be solid in terms of interest income. Beyond that, once interest start to come down, cost margin need to go back to where it used to be 3, 4 years ago, where we are close to 245 basis points. The quickness of the impact will materially drop in how we are going to manage our cost of funding and the repricing of our loans, but this is what is sustainable. If you look at our profitability on a 5-year time line, this is where you need to assume that the normal margin or the sustainable margin for an entity at our size.

So our next question comes from the line of Alay Patel, Barings Asset Management.

Can you hear me, Ramzi?

Yes.

Yes, just a couple of questions. On NIMs, obviously, the NIM gets kind of optically inflated with the CPI linkers and Turkey, et cetera. But in your presentation, you generally put out a NIM excluding this for the group of somewhere between 2.5% and 2.6%. So if we were to model going forward for the group, the Turkish impact, or even for the entire group rather, 2.5% seems to be like a normalized margin, and then I don't need to worry about hyperinflationary losses because -- I want to check this is correct. Because in 2022, for example, I think the hyperinflationary impact on net interest income was around QAR 2.4 billion, and you took our hyperinflation loss of QAR 1.7 billion. So far, the 9 months 2023, the hyperinflationary impact on net interest income seems to be about QAR 1.8 billion, and you've taken a loss of QAR 2.7 billion. So it almost wipes it out a bit. So is it fair just to kind of say, all right, this bank is relatively immunized interest rate movements and 2.5% is a normalized NIM, and I don't need to worry about hyperinflationary loss?

I prefer that you assume 245 basis points to 260 basis points.

Okay, fine. The next question is if I look at the Turkish segment from the presentation, the contribution in net profit U.S. dollars was only $7 million, I think, for the third quarter. In Turkey, you grew loans in dollars by 11%. And you had improvement in NIM. I think the NIM was 7% in Turkey. So net interest income growth is much higher than 11%. But yet, the net profit is down by 85%, to only $7 million. The cost of risk seems contained because it's only a 1.3% NPL in Turkey. So where is the losses coming from? Is it from mark-to-market on investment gains? I mean a bit of it will be OpEx.

Very simple. The hyperinflation, the hyperinflation line because materially it grew.

Okay. So you take the hyperinflationary loss impact, of course, in the segmental of Turkey, yes?

Of course.

Okay. And just my final question is just on cost of risk and asset quality. So if we were to assume -- at the moment, you are at 3.1% NPLs, which is sort of a higher end to where you've been historically.

We are not -- sorry, we are now -- NPL 3.0%.

Yes, 3% NPL. So if I was to assume 70 to even 80 basis points cost of risk in my numbers, on constant 3% NPL, I've got your coverage numbers ballooning out to like 250%. You're not going to do 250% coverage. So can you explain how you square this?

But you're taking -- I think, to end up with this number, you are taking Stage 1, Stage 2, Stage 3, and this can be misleading to the reader. What you need to take is only Stage 3. Some banks, some banks when they issue their coverage ratio, they include Stage 1, Stage 2, Stage 3 ECL plus provision in the ratio. And this is misleading. You should only take Stage 3 against your NPL. And this is exactly what we do. So 100 basis point -- we have 100% coverage in Stage 3 provisioning for NPL for Stage 3 loans. And this is the way it should be presented.

Okay. That's very clear.

Even I, sometimes when I analyze the numbers for banks, even in the region, I get misleading numbers because they include the 3 stages, and they tell me that their coverage ratio is 120%. But if when you take Stage 1 and Stage 2, you end up with not more than 45% to 55%.

So okay. So I should be just focusing on the QAR 25.3 billion in Stage 3 and using coverage based on that number. Okay. Cool.

Exactly.

We are moving on to our next question from Chiro Ghosh, SICO Bahrain.

This is Chiro Ghosh from SICO Bahrain. Just a couple of questions. First is the asset quality of both Turkey and Egypt has remained quite well, especially in an upward interest rate environment -- high interest rate environment, how do you expect this to carry on over 2024 and onwards? So if you can throw some light on that. The second question is on the government deposits side. So I see that the government deposit in this quarter has come off a little bit. So in a high-oil environment, I can understand government loans coming off, but can you throw some light why the government deposits are coming down in the current scenario? And just one more, just third one is, in the past year, you used to give some guidance on both Egyptian -- your Egyptian operation and Turkey operation. So if you can throw some outlook on these 2 banks also.

I'll start with the guidelines for QNB Alahli: loans 12% to 15%; deposits, 23% to 26%; profit and loss, between 42% to 47%. In terms of finance bank: loans, 45% to 55% -- I'm talking about Turkish lira, 45% to 55%; deposit, same number, 45% to 55%; P&L, we're going to be between breakeven to 5%. Now in terms of Turkey NPL. NPL ratio now is 1.3. So if we look at history, Turkish banks always had an NPL ratio between 3.5% to 4.5%. We, in the longer term, need to go back to that ratio because this is a normal ratio for a market like Turkey, the 4% to 4.5%. And that's why in the last 2 years, we have been taking a lot of provision in Turkey to an extent, we reached 166% coverage ratio because we know that NPL will gradually start to pick up, and we wanted to be prepared. Now in terms of government deposits, I agree with you. There was a drop in government deposits in the last 9 months. One of them was to reduce loans. The other one is to build more reserve in the central bank. So different factors, how they manage their own funding. And at same time, there is no major demand from banks to the government to increase deposits. As we mentioned before, the market is illiquid. Banks are not major pressure. We don't see growth -- material growth in Qatar riyal loan. And that's why, the government is relaxed and there is no push by banks to demand more share in their own funding. That's why we have seen the drop in government deposits.

Just a follow-up, so approximately the corporate deposits, the average corporate deposit versus government. Is this a huge gap? Or if you can throw some light, I mean, how much the funding cost will go up because of this shift?

No, government deal with their deposits exactly like any other corporate.

Moving on to next question from Olga Veselova, Bank of America Merrill Lynch.

I have 3, please. The first one is on capital. We're hearing that QCB is moving from Basel III to Basel 3.5. Can you please clarify for us the timing and which impact we might see from this change? So this is my first question. The second question is on NPL on asset quality. What was the source of NPL growth in the corporate segment year-to-date, if you can share this by regions and industries? And the third question is actually a follow-up on net interest margin. Just to clarify. So 2.57%, which you have in the presentation is a group margin. What was the margin excluding Turkey and Egypt in the third quarter? And what is your outlook on a likely margin for the next 12 months?

I agree with you, we started testing here Basel IV. In fact, we have started around 6 months ago, impact that we have seen now is not material, between 10 to 25 basis points, not more than that. NPL by sector, there was a pickup in NPL, but it's not that big. I think in terms of sector concentration, I cannot pinpoint one sector that we have seen most of the increase from, but I will point out real estate sector was an important sector, which added to it, but it's not the majority in terms of contribution. NIM, if you exclude Turkey and Egypt, I think you can assume it is between 220 to 225 basis points.

That's great. And what about outlook on margin for Egypt for the next year?

Egypt has seen good growth in margin during the year. If we started the year at 540 basis points, we ended the year at 650 basis points. Is this sustainable? No. You cannot maintain a 650 in basis point if you want to increase the book. But what is sustainable, I think 550 basis points should be sustainable for Egypt, but this will be a long-term movement.

Yes. That's great. And just to clarify on the first answer. So you mentioned that for now, the impact is small 10, 25 basis points. Do you expect more impact to come. So it's a process, it's not over? And if yes, then what is the timing?

Again, not really as comfortable. I said, 10 basis points to 25 basis points, and I think, for a fact, today it is around 10 basis points. But I'm capping at 25 basis points. I don't see more impact from what we've seen until today, unless the QCB goes to a more conservative approach, which we have -- are not seeing until today on this matter, it will be capped between the 10 basis points and the 25 basis points.

We're moving on to the next question from the line of Edmond Christou, Bloomberg Intelligence.

Thank you for the call. Can you hear me?

Yes, loud and clear.

Excellent. So the first question is a broader question. Just looking at the private sector deposit in Qatar. And if I look year-to-date, it's been falling. Is there a reason for the deposit for the private sector to not be growing? I'm just trying to reconcile this with the credit growth we have seen. So we have seen almost 1% credit growth for the private sector this year. So we expect deposit also to be growing. So what is the rationale behind this? So the second question is, so the pickup in the private sector, probably you were expecting better private sector loan origination than what you have delivered. What's your expectation into next year? And how conservative we should be when we talk about next year asset growth for the bank or the banking sector in Qatar in general? The last one is, maybe I'm wrong, but it seems you have done some optimization for your cost of funding in Turkey. My understanding, your deposit reprice quicker than loan and you should have a negative carry, but you have a positive here. So how should I think about the margin for Turkey going forward? And the last one on margin is, if I may. Let's assume the Fed starts next half of next year, cutting interest rate gradually. Do you have a room to optimize your cost of funding in Qatar, where -- and probably are able to enhance your asset yield? And is there an opportunity for margin to be stable? I understand that you don't think margins are stable going forward. But you will expect with cost of funding and some competition on the local liquidity from last year that there's opportunity for Qatari Bank to optimize on the cost of funding and gain and falling into the state environment if the cut is gradual and not significant?

Okay. Private sector deposits coming down. One reason, if you look at the system [indiscernible], we have seen a drop -- a good drop in management funding. And this is a continuation from what happened in the prior year. Again, the increase in deposit, it really depends on the private sector, it really depends on the momentum in loans and the rates that banks are willing to pay. This mechanism impacts the overall growth in deposits. Loan next year, I'm budgeting 5% to 7%. We have good signs that next year in terms of growth in private sector will be much better than this year. Of course, this year was also impacted by the repayment of loan by the State, which we assume this will continue next year if oil prices continue at current level. But in terms of growth in private sector loans, definitely, we see a good momentum. Even in the last quarter, there are signs in terms of new applications for loans that things are moving better than what we have seen in the first 9 months of the year. Margin for Turkey, this is probably the most difficult question that anyone can ask me in terms of how to predict how margin in Turkey will move. This can move every month different from the previous months depending on 10 factors. But the most important one, how the regulator going to move in terms of policy. No one can predict what is going to happen. And that's why it's very, very difficult for us to predict. Last year, we ended up close to 800 basis points. In this year, for 9 months, we dropped to 700 basis points. Third quarter, we have seen major pickup in margin than the first 6 months. It will be extremely difficult for me to predict how we manage this with our Turkish team quarter-on-quarter. And we focus on short-term loans to short-term deposits to allow us to move very quickly and to absorb any sudden movements in terms of policy. If it drops rates in the next half of 2024, we always said that we benefit from an increase in interest in Fed rate. And where we said that an increase of 100 basis points positively impact our total net interest income annually by between QAR 500 million and QAR 600 million. Of course, that number can go down based on how we manage the cost of funding during the period, how much pressure we have in terms of deposits based on the growth in loans. And based on different factors, we can control cost of funding. But at the end, if interest starts to come down, definitely, interest margin on a monthly basis will come down, but that interest margin is not huge to an extent that we can impact the growth. Interest -- net interest income for the group is -- now it's around QAR 30 billion annually. So an increase -- an annual increase of QAR 500 million, that is manageable in terms of reducing it, will reduce the impact. And that's why when we talk about margin, I always say that we need to assume that sustainable margin for the group is not 257, but it is between 240 and 245 basis points. Just to be on the conservative side.

Okay. Interesting. Yes, I think this is very clear. And in terms of the cost of funding optimization, I'm right that there has been some action taken in the quarter in Turkey to avoid a significant increase on repricing of deposits. I mean you let some deposit go, right?

Please drop me an email on this, and I'll respond to you based on exactly what took place.

Okay. The last one on the fees. Is it sustainable? The fees has been very strong in Q3. I mean is it sustainable for Q4?

Yes.

Okay. Perfect.

From what I've seen the momentum in the fourth quarter, yes.

We are now moving to the next question from the line of [ Nikhil Phutane ], CBQ Asset Management.

I think very -- a lot of questions have been answered. But just to understand a little bit more on the Turkey side, as you rightly mentioned, pricing interest rate would help you enjoy better spreads. From that point of view and understanding that Enpara Digital Bank operations is now constituting more than 2/3 of the overall profit at Finance Bank. Do we see the similar trend to continue given the fact that we are seeing increasing loan -- retail loan market share and reducing cost-to-income ratio?

As I mentioned, to be able to predict how margin will move in Turkey, it's highly dependent on lot of factors. The most important one of them is how the regulator will move the interest system more. This is very important and it's very difficult to predict. Even that's why, when we build our budget for Turkey, we build it with 3 assumptions, using 3 different scenarios. And some of the scenarios are: there will be an increase, there will not be an increase or there will be a very fast increase. And so the -- each scenario, end up with extremely different numbers. At the same time, then you end up with the impact of devaluation, a pressure -- how much pressure in cost of funding. So a different factor. It is very difficult for me to give you a number on how we see margin in Turkey is going to move at this stage because I can give you a number, but I can guarantee to you, it will not be very accurate.

Again, coming back on the Turkish side, sir, I mean, your hyperinflation number actually has been seeing a sharp increase. Related to your second quarter, for example, we have seen a quite sharp increase. I just wanted to understand the background behind this. For example, in the currency for devalue from TRY 19 to $1 to TRY 26 during the second quarter and in third quarter, it's quite flat. So are we missing something? I mean, how the hyperinflation is accounted? I mean, can you just throw some light on this so that we understand it better.

The inflation -- the hyperinflation number was not impacted by the valuation. The hyperinflation number has been impacted by the inflation number that the State issues every month. We have seen an increase month by month of around 9% in July and August. So there was a major pickup in inflation number that the State is issuing. This is the most important factor that's impacting inflation -- that hit back hyperinflation line.

Do you foresee, I mean, a similar time going forward also in the fourth quarter?

If you can predict inflation in Turkey, I will be able to give you a number.

Thank you, sir. And one last question on Egypt operation, sir, if possible. Given the recent trading downgrade, which we saw from Moody's on the debt issues and record inflation and going forward S&P's also in October is coming up and all that. How do you foresee your Egyptian operations in terms of provisions and currency devaluation affecting QNB as a group. I mean, overall, what do you see going forward in 2024?

The downgrade should not impact the NPL, because loans, deposits in Egypt are Egyptian pounds [indiscernible] and we carefully manage our NPL and our coverage ratio in Egypt. I don't see the downgrade of the state to impact the NPL ratio.

We now have a few questions, which came through the Q&A box. I'll read them out for you. The first question is about the asset quality. Can you please share Qatar cost of risk on a stand-alone basis? Was there any write-back or recoveries from Turkey this quarter?

QNB excludes Turkey and Egypt, cost of risk at around 75 basis points. Was there any write-backs -- do you mean the write-backs in Turkey during the quarter? This is immaterial, that will materially impact net profitability for the group.

All right. Next question. It's about -- could you comment about the share of GRE deposits in your total deposits? And what led to the decrease in assets and deposits compared to the previous quarter?

GRE deposit is 26.6% of the total. What is the next part of question, please?

Yes, what was the reason behind the decline in assets and deposits compared to the previous quarter?

Again, it is the type of the private sector for loans and deposits. And of course, please add to that the decline that took place in terms of devaluation. The devaluation also impact the overall consolidated number.

Sure. Another question, which is coming from the Q&A box. It's about M&A plans. What's the long-term strategy regarding the M&A? And what regions is Qatar National Bank looking at?

Southeast Asia will continue to be the focus. We are going to continue to be opportunistic. If we could find a good target at a good multiple, with good potential for growth, we will look at it. But today, as of today, we are not looking at anything, specific. But again, things can move. If we find good target at a good multiple, we will look at it.

Another question from the Q&A is regarding funding. So we hear that the banks have been guided to lower their international deposits. Is there any guidance to lower your Eurobonds issuance as well?

No. Yes, it is not to reduce nonresident funding. It is more to focus on longer-term funding and to reduce short-term nonresident funding. This is where the QCB wants things to move forward. But I don't see this impacting our euro markets here and if you, Mark, have any thoughts.

So, exactly as Ramzi says. I mean, actually, we've been very quiet in the bond markets over the last couple of years. So there's not been a material increase in our EMTN utilization over this period. And correctly, as Ramzi says, that the -- the focus, if you like, is on extending tenure and the EMTN issuance that we do is longer tenure of funding anyway. So there is no pressure or no guidance at all to reduce that number. If anything, that will go up slightly going forward.

Sure. Another question is about your FX income that you earned in Egypt and Turkey from your FX operations. Do you hold that income in respective countries? Or are you able to repatriate it to Qatar?

No, this is part of the income of the individual countries.

We have another question which came through the Q&A box. Let me read it out for you. Any update on the group guidance? That's the first question. There's a question about the cost of risk.

We already answered this question. We said balance sheet 2% to 4%; P&L, 7% to 9%.

Excellent. We have one question which is coming in through the live line. It's coming from [ Deep Shah ].

Can you hear me well?

Yes, we can hear you.

Yes, yes.

So actually, I have a question related to deposits. Split of deposits with government is 26.6% and corporate is 56.6%. Just wanted to understand, in corporates, does government-owned entities are included or it just includes corporates, which are privately owned?

This will include only private sector corporates.

Okay. So Qatar Telecom, which is not owned by -- it's owned by government, will not be part of corporate, right?

Ooredoo. You mean Ooredoo?

In deposits splits, Qatar Telecom, which is owned...

Qatar Telecom, I think they changed their name 10 years ago. Ooredoo is part of corporate.

It's part of corporate, even though it's government-owned. So government and government agencies...

It is a listed company. It's a listed company. It's a private sector, and you cannot treat it as government.

Well, we appear to have no further questions from the audience. So yes, we're -- all right. We have a follow-up from Alay Patel.

Yes. Sorry, just one follow-up, please, Ramzi. Just with the -- I think the Central Bank is implementing Basel IV from first of January '24. Do you have any indication? Normally, I've been reading that this is actually better for your capital ratios? And would you consider, given your currently strong car improving your payout ratio, especially in light of the fact that you don't any M&A on the horizon?

Basel IV will not have a positive impact on our capital situation. We already answered another participant that the impact will be negatively between 10 to 25 basis points.

Because the way it calculates risk weighting to punish some financial institution, not -- it will not benefit financial institution. To be honest, nothing coming today that benefits the government -- that benefits FI's. Everything that comes -- it's usually put more limits to financial institutions around the world, not only in QNB.

Okay. So I guess if it penalizes you 15 to 25 basis points, you're still at close to 20% Tier 1. So on the dividend, is it just the policy...

Are we going to reduce EBITA, you mean?

No, I was just asking if you would improve the dividend payout ratio.

No, I think payout ratio is now around the 40%. I think this is where we are going to sit between the 40% and 45%.

Yes. So at this point of time, we don't have any further questions. Ramzi, would you like to make any closing comments for the call.

I just want to thank everyone on participating. Signs for the fourth quarter continue to be very solid and very positive. We still believe that operating profitability for the group will be around 11%, which is a very healthy and very strong, which will allow us to continue to be -- to have a very strong number, at the same time conservative number. Thank you all for participating and hopefully to see you again in January.

Thank you, everyone, for joining this call.

Have a good day. Bye.