Qatar National Bank (Q.P.S.C.) ($QNBK)

Hello, everyone, and thank you for joining the QNB Q1 Earnings Call. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions] It is now my pleasure to hand over to your host, Janany Vamadeva from Arqaam Capital to begin. Please go ahead.

Thank you, Lucy. Good morning, good afternoon, everyone, and thank you for joining us today. This is Janany Vamadeva, and on behalf of Arqaam Capital, I'm pleased to welcome you to Qatar National Bank's Q1 2026 Earnings Conference Call. I have with me here today from QNB management, Mr. Ramzi Mari, the Group Chief Financial Officer; Mr. Noor Mohammad Al-Naimi, Group Treasury and Financial Institutions; and Mr. Mark Abrahams, Group Treasury Trading. Without further ado, I now turn the call over to Mr. Mark Abrahams. Over to you.

Thank you very much, Janany and Arqaam Capital for hosting our call today. Before we begin, it is customary to remind everyone that this call is for investors and analysts only, and any media should please disconnect now. I will begin by giving a brief overview of the global and regional macroeconomic backdrop. We will then present briefly the financial results. And finally, we will open the floor to Q&A. The beginning of 2026 was characterized by a resilient global economic backdrop driven by artificial intelligence and technology-driven investments and solid private sector demand. The IMF in its January 26 update continue to project global growth at around 3.1%, with inflation expected to ease further while noting downside risks from geopolitics, trade friction and potential market corrections. Momentum has weakened materially since the beginning of March '26 due to the geopolitical events in the Middle East. This has resulted in disruption of commodity and energy markets and heightened volatility with potential downward revision to the global growth outlook. This has also affected the overall outlook and macroeconomic landscape for the GCC primarily due to the suspension of trade by the Strait of Hormuz and the attacks on the region's energy, transport and other industrial infrastructure. Specifically for Qatar, LNG production and associated exports have been impacted. While the evolution of events remain uncertain, our baseline assumption is for a resolution via negotiations at some point. In this case, the reopening of the Strait of Hormuz would lead to a resumption of hydrocarbon-related exports. However, with reduced capacity of LNG production due to the damage to the Ras Laffan Industrial Complex, we believe that higher post-conflict energy prices will support a rapid recovery. Furthermore, Qatar Energy revenues and plus dividend payments to the State of Qatar will also be helped by the opening of the Golden Pass Terminal in Texas, United States, from Q1 '26. On the non-hydrocarbon front, the sectors most impacted are accommodation transportation and recreation. We believe that the remaining sectors, including construction, real estate, wholesale and retail and finance and insurance are less impacted in the short term. A key message that we would like to emphasize today is the resilience of Qatar's banking system and its ability to keep supporting the economy through this period of volatility. First, Qatari banking system remains robust and resilient. Following its review of recent geopolitical developments, the Qatar Central Bank has reiterated that the financial system is operating from a position of strength highlighting strong liquidity, capital levels significantly above regulatory requirements and strong provisioning coverage against credit risk. Second, QCB announced a set of precautionary measures to maintain orderly market functioning and support deep liquidity in the local market, including unlimited Qatari riyal repo facilities, the introduction of a term repo facility of up to 3 months and a reduction in the cash reserve requirements by 100 basis points to release additional liquidity into the Qatari banking system. QCB has also permitted banks to offer temporary payment deferrals for affected borrowers, subject to internal policies and supervisory guidance. This payment deferral is not expected to materially impact QNB's results. Third, QCB's financial stability framework explicitly centers on ensuring that the system can withstand shocks and continue performing its core functions. This is supported by macro prudential surveillance, stress testing and regular financial stability reporting. In addition to the safe and sound financial system, the recent weeks have also demonstrated operational resilience in the banking system. Digital banking channels of QNB were available throughout this period of our customers -- to our customers without any interruption due to our significant investment in IT infrastructure. In the initial days of March, QNB ensured that certain branches in high footfall areas remained open to serve our customers. Since the 24th of March, all branches and offices have been open to serve all customers. Furthermore, from this date, based on government guidance, all public offices, educational institutions and most commercial and industrial enterprises are back to in-person attendance. The country's flag carrier is gradually building up capacity and is expected to cover more than 120 destinations by mid-May. In summary, though the geopolitical events have created uncertainty, nonetheless, the banking system has remained robust and resilient. The overall society has returned back to normalcy quicker and faster in relation to its neighbors, and the overall economy will be able to recover quickly once a permanent agreement to the situation has been finalized. We will now move on to QNB's financial results for the 3 months ending 31st of March, 2026. The Key financial results were as follows: net profit was QAR 4.3 billion or USD 1.2 billion, growth of 2% compared to last year. Robust revenue growth resulted in an increase in operating income to QAR 12.1 billion or USD 3.3 billion, up 10%, demonstrating QNB Group's success in maintaining growth across the full range of revenue sources. QNB's cost-to-income ratio remained strong at 24.1%, which is one of the best ratios among large financial institutions in the Middle East and Africa region. Total assets currently stand at QAR 1.41 trillion or USD 387 billion, up by 6% from the same period last year. Loans and advances reached QAR 1.03 trillion or USD 282 billion, up by 8%. Despite the geopolitical uncertainty present across the broader region, QNB continued to attract deposits, which have increased by 5% from March '25 to reach QAR 974 billion or USD 268 billion. This reaffirms the strong confidence of our customers and investors in addition to the quality and resilience of the QNB Group. The group's regulatory loan-to-deposit ratio remained stable at 98%. Cash and balances with central banks increased by 10% from December '25 to reach QAR 87 billion or USD 24 billion, further underpinning the group's consistently strong liquidity position and its ability to increase liquidity buffers and resilience against the uncertain environment. QNB Group's ratio of nonperforming loans to gross loans is at 2.7%, 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 remains at 100%. Total equity increased to QAR 125 billion, up by 10% from March '25. The bank's capital adequacy ratio at 19.4% is comfortably higher than both QCB and the latest Basel III reform requirements. In relation to the QNB buyback program, QNB has completed buyback of 125.3 million shares at a cost of QAR 2.1 billion up to March 31, '26. The buyback execution is in progress. We will now turn to Q&A. Thank you.

[Operator Instructions] I'll now hand over to moderate the Q&A session. Please go ahead.

So our first question comes from Jon Peace from UBS.

Well done on the resilience in the first quarter. My question was, firstly, do you have any updates to your guidance for this year around things like loan growth, cost of risk and NIM, both for the group as a whole but also for the international subsidiaries in Turkey and Egypt. And another question, please, just on the buyback. Would you expect to finish it this year? Or are you going a little slower given the current environment or even maybe a little faster given the lower share price?

Yes, John, this is Durraiz. In terms of our guidance, our guidance for the full year 2025 -- 2026 is as follows: we expect profitability growth between 5% to 7%, and we expect the loans, deposits and assets to grow between 6% to 8%. Our NIM guidance is 60 to 65 basis points. and our cost of risk guidance is between 70 to 80 points -- 80 basis points. For QNB Turkey operations, our combined operations, we expect the profitability to grow between -- in local currency between 25% to 30%, and we expect the balance sheet to grow between 20% to 25%. For QNB Egypt operations, we expect their profitability to grow in high teens and their loans to grow 20% to 25% and their deposits to grow between -- in high teens and their assets to grow in high teens. So that's for the -- that's for the guidance for the full group and our key operations in their respective local currencies. In terms of the questions on buyback, it's simply a function of total volumes in the market as we participate a certain percentage of the volume. If volumes increase, our participation increases. If volumes remain lower, our participation slows down. So it's simply a function of that. And we would be -- we would finish it by -- expect to finish it by end of next year, for which we have the approval already.

Could I just ask a clarification on the guidance. If I just compare it with what you gave us at the end of last year, you're only expecting a very slight slowdown in loan growth. And I think the cost of risk guidance is even a touch better. So that's quite an optimistic outlook. Would you agree?

Yes. Given what we know and what we have in the pipeline, this is the update in the guidance. We have slightly moderated the bottom line and the asset growth, whether from a cost of risk, the reason why we are slightly more optimistic is, as you note, QNB has been very different from other peer banks where we have over the years post 2021 build a lot of buffer to provisions in. And this is something that would give us a lot more stability in uncertain times. So that is where we are coming from.

We have our next question from Chiro Ghosh from SICO.

This is Chiro Ghosh from SICO Bahrain. I have a few questions. So first one is related to the international deposit. So I know the number which we see on the international deposit is kind of mapped with the -- but can you tell us what is -- how much is the Qatari operation, what kind of international deposit is funding your Qatari operation? Basically, you want to see if there is any outflow or if you can give us some color on that one. Second one is a little bit on the North Field project delay. North Field project this year has been deferred basically. So what will be the kind of impact? Because I see the loan growth has been reduced by only 100 basis points. But would it be a longer-term impact? Or are you compensating it lending to some other sector that is on at this one? And the third one is related to the QCB, the support which have been offered. So I believe that most of the 9 items you are anyway comfortably above existing with the capital and all. But if you can give us some clarity on the liquidity side or rather has this QCB policies have benefited you or you would have been indifferent either? These are my questions.

Thank you, Chiro. So in terms of deposits, if you actually look at it, we give you the breakdown of deposits in our presentation, and you can figure out what are the international depositors. If you go to Slide 21, Europe and others are principally our international depositors. And you would see that actually, they have been flattish or slightly higher from a quarter on quarter on year-on-year basis. Our international depositors that we have in QNB are extremely well diversified by currency, by tenure, by geography, and these are very multiproduct relationships that we have built over the years. So this is something that we have been able to remain -- they have remained stable despite political uncertainty that is going on. In terms of North Field expansion project, as you would recall, we have never said that we would directly lend to those projects. Yes, we do benefit from the associated development around it. And what we think is that our loan growth guidance basically reflects government expenditure, which government has already committed, not related to LNG and our international diversification, our loan growth in other markets that we have being both Egypt and Turkey and other international markets. In terms of QCB support or liquidity measures, technically speaking, the benefit of those measures actually came in, particularly on the liquidity front, actually were reflected post -- in the post results in the first week of April. Even without that benefit, we were able to increase our cash and bank reserve -- cash and bank balances and increase our deposits. So yes, of course, QCB measures have helped, but it is not something that we banked on, and it's something, of course, that are additional benefit for us.

I think it's also worth bearing in mind that the new repo facilities -- sorry, just to add to what Durraiz just said, the repo facilities that have been offered by the Central Bank, QCB has 0 exposure as of today.

Okay. No, my question was, so if they reverses it, so fair to assume that QNB would have very negligible impact once this is reversed back.

Yes. Over -- as and when they are reversed, we look at it at that time, but it's not something that we haven't taken into account for us to continue.

So we have our next question from Olga Veselova from Bank of America.

I have 3. One is on central bank support measures to borrowers. I wanted to check what are the criteria to borrowers, which allow payment deferrals. And during your presentation, you mentioned that you believe QNB will not be impacted by this measure. Why? That's one. Second, on overall support measures from the Central Bank, for which period are they provided? Is there a deadline when they stop being provided? And third is, when I look at your investor presentation, we noticed that for domestic business, there was actually a decline of loans and deposits Q-on-Q in Qatar alone. And these were offset by increases in deposits and loans in international operations. Domestically, I wanted to check what was the nature of decline of domestic deposits. And why do you think this will change later in the year?

Okay. In terms of central bank support measures for borrowers, the criteria is quite broad-based in the Central Bank circular, which it talks about that borrowers which in banks opinion are impacted by the current geopolitical events, the time period which is related to the second question is that for -- particularly for borrowers, it talks about initially 3 months, starting from the 1st of March. And then it can be reviewed the circular says, as and when the deadline approaches. Why do we say we will not have a material impact is because it's only a deferral of the payment. It is not reducing the interest rate on any of the facilities or it is not talking about giving free lending during that period. And even if you look at how certain things played out back during the COVID crisis, we had a facility in which the interest rates were reduced at the maximum amount of borrowers which took the facility during the COVID crisis, which was a much broader crisis, what about QAR 25 billion. We expect -- we don't have the numbers yet, but we expect the numbers for borrowers, which would take this facility would be lower than this. And this is only payment deferral. It does not impact bank from an interest income perspective. In terms of domestic loans and international loans, one thing that we should keep in mind when we are disclosing in our financials, we do not disclose by booking entity. We disclose by the residents of the customers. So we -- while we in Qatar have a lot of customers were book for international loans and both international deposits. So while the entity remains our Qatar operations, the customer composition can change, and that is what you see in our investor presentations.

Sorry, can you help me to understand the latter better? So what exactly has happened? You say those customers which have residents in Qatar, they had decline or deposits. Is that correct interpretation?

We would say, yes, if it does for customers in resident, maybe they went out, but more than offset by customers from outside Qatar.

It wasn't the same money customers outside of Qatar. It wasn't the same money, which were free channels to different jurisdictions. It was new money coming in, right?

I would not have customer details, but it could be the money coming in from outside as well, but I'm not at liberty to tell you exactly which customers caused it.

So we have our next question from [ Rod Ansari from GTM ].

Congratulations on set of results. So just 2 questions from me. One was on fee income. It was fairly strong performance on fee income despite March -- bulk of March being impacted by the conflict. So I just wanted to get a sense of what were the key drivers on the fixed fee income side during this quarter. And secondly, on the hyperinflation charge, I mean, it's quite significant in this quarter. If you could help understand how to think about this over the next few quarters and we are seeing about QAR 400 million, QAR 500 million charge over the last couple of quarters and this quarter is over QAR 1 billion. So if you could help explain how to help us understand how to think of this over the next few quarters.

So if you look at the fee income side from -- especially from Qatar operations, it is principally driven by a balance sheet-driven fee income that we have and that is even in terms of uncertainty, those things continue. That is -- and we had very strong performance from our Turkish and our Egyptian franchises, which more than offset whatever was a little bit of weakness coming in from our cards business in Qatar. So on an overall basis, it was very strong income. Now coming to hyperinflation charge and how does it play out, why there is a significant increase in hyperinflation charge compared to last quarter, there are 3 ways - 3 primary factors, which impact hyperinflation charge. The first is the net monetary position, which is essentially the equity net of fixed assets. The second is the inflation rate. And the third factor is basically the exchange rate. What has happened between last Q4 2025 and Q1 2026 is that the inflation rate has moved from quarterly rate of 4% to a rate of 10% in the first quarter of 2026, which it has more than doubled. That is what is simply being reflected in our hyperinflation charge of Q4 versus Q1, whereas exchange rate has remained broadly stable, it's only down by 3%. What is the outlook with the way our outlook for inflation is we do not expect that the total hyperinflation charge for the year will be lower this year than 2025. So 2026 would be -- will not be lower than 2025. That's our outlook for the full year.

Sure. And just speaking of that, I mean, the OpEx growth that we've seen, is that also a reflection of the exchange rate movements from the international operations?

It is principally coming in from a higher nominal increases in Turkey. We should remember Turkey inflation remains at 30% in nominal terms. And b, when it is translated to dollars, exchange rate devalued only by 3%, which effectively is we're talking about significant increase coming in from Turkey. That's what's driving primary increase in OpEx in all of our OpEx lines.

[Operator Instructions] We do have a couple of questions in the chat box. There's one question on margins. The probability of interest rate cut has reduced. What is your NIM sensitivity to 25 bps NIM rate movement. Can you give some clarity on your asset quality within the Qatari market? Are you seeing any defaults which you're compensating with improvement from your international operations? And the last question is your trading income sharply rose in this quarter. Can you give some color on it?

In terms of NIM sensitivity, that does not change. 100 bps decline would basically decrease our overall net income between QAR 600 million to QAR 800 million on an annualized basis. In terms of asset quality, at this time, it's too early to say what are the sectors being impacted. But as we have said earlier in the call, our exposure to those sectors is extremely low, and we can cover it from our existing cost of risk guidance. Our trading income has gone up, as we've talked about in an earlier question, principally coming in from our Turkish franchise and our Egyptian franchises.

There's another question on loan growth. Over the past few months, we've seen the overall lending growth in Qatar stagnating. How do you see the current operating environment due to the war along with impending reconstruction activity affecting the loan growth outlook?

Let's talk about this quarter's loan growth first. It is about 93 basis points. This is slightly lower than what is generally expected in Q1 and why this was impacted are 2 one-off factors. One is we had a devaluation in Egypt. And secondly, there were certain repayments in Qatar operations. If we exclude both of these factors, our loan growth in Q1 would have been a very decent 2% sequentially. Going forward, our guidance for loan growth remains 6% to 8%. We expect it to benefit both from Qatar-related operations, public sector, as well as our international -- from our international operations.

There are a couple of questions, but it mainly asks about loan growth and cost growth, which you've already answered. I think we have one audio question from Jon Peace from UBS.

I just wanted to revisit the strength of the noninterest income in Turkey and Egypt. Were there any sort of one-offs in there? And how sustainable would you see that noninterest income rate?

We would basically -- if you really want to compute it, you should take a quarterly average of the previous 4 quarters to get more of stable fee income from those -- from our franchises.

We have another question on loan growth in the chat box. And another one is asking about do you have any guidance on capital ratios or any intention to issue Sukuk or Tier 1 or Tier 2 bonds?

No. None. We are very comfortably ahead on all our capital ratios, and we don't have any intention of issuance at this time.

We have a follow-up from.

And again, it's on loan growth. I mean you've revised your guidance down by about a little bit for the year. Just some preliminary thoughts on which segments do you think that you could -- you're expecting the slowdown to come from. I mean, within Qatar you've had a good couple of years, last couple of years, both on retail and corporate. And does the event, the conflict, does that change in any way your view of how to assess domestic credit in terms of any sectoral exposure, et cetera? Or are you fairly comfortable with how things are recovering and expect a full recovery soon?

From a retail perspective, we -- that is not a very big portion of our book and has not been. Principally, we are a corporate bank from a lending side and what has changed is that, at least in the short term, we're talking about 3 to 6 months, we expect public sector borrowing would replace some of the loan growth, which was coming from the LNG expansion, the associated facilities with that. So this is why we have slightly reduced it by 100 basis points. But our view regarding loan growth in Qatar remains consistent that we would expect in the long run to see mid-single-digit growth at least until late 2020s.

[Operator Instructions] We have a couple of more questions in the chat box. One is ECO charges have increased to QAR 2 billion. What sectors or geographies are contributing most to provisioning, especially keeping rising geopolitical risk?

ECO charges have increased because we have also slightly attuned our model and we have slightly increased the downside risks and slightly reduced the base case assumptions and removed upside risks. That's one. In terms of how the charges are broken down between geographies, half of it is coming from our Turkish operations and the remaining half is coming from Qatar and our small portion coming from remaining international operations.

There's another question. Would you mind repeating the net profit guidance for 2026?

5% to 7% growth.

And the next question is asking about Turkiye expectation for quality rates and inflation rate, guidance for Egypt in 2026. And has your guidance changed given the rate environment and outlook?

We have already given the guidance for Turkey and Egypt earlier in the call. And our expectation for inflation rate is going to be close to 30%, which is very similar to current levels for the rest of the year.

I think that's all we have for today in terms of audio and the chat box. Thank you very much, everyone, for joining the call, and we do appreciate your participation. Thank you very much.

Thank you.

This concludes today's call. You may now disconnect your lines.