The Commercial Bank (P.S.Q.C.) (CBQK.QA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. I'm Mohamed Farhan, Head of Investor Relations, and I welcome you all to the Commercial Bank Full Year 2025 Results and the Strategy Update. On this call, I have on to my left, Stephen Moss, who is the Group Chief Executive Officer of Commercial Bank. And to my far left is Noman Ali, who's the Chief Financial Officer of Commercial Bank. During the duration of this call, we will put you on mute. And once the presentation is complete, I'll come back to you for question and answers. And now I hand over to Stephen Moss, who will provide an update on our strategy.

Good afternoon, everybody. Thank you, Farhan. For those of you who don't know me, my name is Stephen Moss. I joined as Group CEO of the Commercial Bank on the 1st of August last year. Now today, as Farhan said, we're going to talk you through the next phase of our strategy for the period from 2026 to 2030, which we've been working on for the last few months. Now we're building this strategy on a very strong retail and wealth franchise, particularly amongst expats who -- and we support or where we support multiproduct cross-sell relationships as well as long tenant relationships. On the wholesale side, we are also a trusted banking partner with high-quality transaction banking and a high-quality payments platform, both of which are well positioned to scale fee-based income. Overall, we have a strong reputation as a leading digital and innovation-driven bank in Qatar with award-winning customer service. Now the challenges we've worked to address in this strategic period from 2026 to 2030 are as follows: margin pressure from global rate normalization and increasing competition. An increasingly sophisticated customer -- sorry, increasingly sophisticated customer expectations in digital, wealth and servicing, the increasing importance of capital efficiency and fee-based revenues, the need to fund continuing investment required in technology, people and data capabilities, the need to draw a line under the legacy book and focus on managing the portfolio to achieve -- sorry, to target achieving a normalized cost of risk and a good trajectory for Stage 2 ratio reduction. The need to manage our property portfolio and divest property at the appropriate time, the need to improve our deposit mix and improve our cost of funding. So let me start with the big picture as is set out on this slide, our strategic vision, ambition and the priorities that will guide our execution. At the top, our vision remains unchanged to be Qatar's banking partner of choice, delivering long-term value for our customers, our people and our shareholders. To realize that vision, we set a clear ambition to build a stronger, more balanced and sustainably profitable bank. That means a more balanced business between retail and wholesale, a focus on generating more fee income and capital-light growth and the business overall that consistently deliver returns across the cycle. We've translated that ambition into clear strategic priorities that are set out in summary on this slide. In retail, we're building on strength and broadening our ambition. We already have a leadership position in the expat segment, cards and employee banking, and we plan to defend and grow that position. But at the same time, we plan to accelerate growth in the category customer segment, particularly in the affluent and private banking customer segment, deepen wealth and advisory relationships by expanding our digital wealth tools and drive stronger cross-sell and product penetration, leveraging our existing client base across lending, remittances, insurance and savings. We are confident that our retail business will remain a consistent engine of value and a platform for digital-led growth going forward. In wholesale, we plan to deliver more capital-efficient cross-sell-driven growth. Firstly, by growing the business in higher return segments with a focus on mid-corporates and SMEs where we see attractive risk-adjusted returns and strong demand. Secondly, by deepening our strategic relationships with GREs and top-tier corporates, positioning the bank as a lead partner for lending, FX and cash management solutions. Thirdly, by scaling our fee-based income, particularly in transaction banking, trade finance and treasury. And finally, we're taking decisive action to resolve our legacy exposures, which will improve the overall risk profile of our credit book. In summary, we will be very focused on improving capital efficiency and portfolio returns, diversifying our funding base, maintaining strict cost discipline with positive jaws from 2027 onwards and normalizing our cost of risk while improving our asset quality and our asset mix. Now delivery will be enabled by 3 strategic levers as I set out on this slide, all of which we are investing in. Firstly, we will continue to modernize our technology. This will support speed, scale and efficiency across all of our businesses. Secondly, we will further reduce -- further enhance our digital delivery across onboarding, servicing and cross-channel engagement. We plan to maintain our leadership position in digital adoption in Qatar and push this further, particularly in personalization, mobile journeys and integrated servicing. Third, we are simplifying our organization and building future skills. This includes investing in analytics, AI, our product suite, our frontline talent while reinforcing a values-driven performance culture based on clear ownership, accountability, collaboration and execution. So let me speak a little bit about AI, which I see as one of the most powerful enablers of our strategy and an area where CBQ is moving early and with intent. We launched our AI initiative some years ago with a clear plan, build foundational capabilities, pilot high-impact use cases and scale adoption in a way that delivers measurable business value. Over the last 18 months, we've made tangible progress. We've invested in our core infrastructure, including our data architecture, GPU computability and internal AI platforms, and we've already deployed several use cases into production. These include AI-powered document processing and a Gen AI customer service assistant helping manage operational and call center e-mails. These are not experiments. They are live, delivering value and laying the foundation for the next phase of our use of AI. Going forward, we will launch further AI initiatives with 4 clear value drivers: increasing operating income by using AI to better target customers, improve product matching and drive smarter cross-sell and upsell. Secondly, enhance customer experience by deploying AI and voice assistance to deliver faster, more personalized engagement; thirdly, improving process efficiency through automating operational workflows such as credit limit reviews, onboarding and origination to reduce cost and accelerate execution. And fourthly, strengthening risk and compliance, and this will be done by embedding AI across credit, fraud and regulatory processes to proactively manage risk and reduce manual intervention. Together, these initiatives will help us unlock income, reduce our cost-to-income ratio and enhance our risk management. We believe we are well positioned in AI adoption and our ability to embed it across every part of our business. Now let me walk you through our consolidated targets for the strategy period. Our aim is to deliver safe, sustainable profitability with strong risk and capital management discipline and the targets we set out on this slide reflect that objective. Firstly, from a profitability standpoint, we're setting a steady improvement in return on equity, supported by positive jaws from 2027 onwards. Our cost-to-income ratio will improve over the period, driven by digital simplification, operating leverage and cost discipline. Our net cost of risk will normalize to 70 to 90 basis points in 2028, as we said before, as we address our legacy exposures and continue strengthening our credit underwriting and risk management processes. Prior to this, in each of 2026 and '27, we expect an elevated gross cost of risk but lower than 2025 and a net cost of risk of between 80 to 100 basis points. On cost, we expect to deliver positive jaws, reflecting revenue growth outpacing cost growth, not just in 1 year, but consistently across the strategic period from 2027 onwards. In terms of dividends, we are committed to target delivering a sustainable dividend over the period. And then on asset quality, we're targeting improving our coverage ratio whilst reducing both NPLs and our Stage 2 ratio through active portfolio and risk management. And on capital, we will maintain a strong CET1 position and total CAR comfortably above regulatory minimums while creating room for targeted strategic growth. These targets are grounded in our internal plans, which are based on the strategy work we've done over the last few months. We will track these targets with the same level of discipline and transparency as those of you who know me would expect. To close out this section, I want to -- I want to bring it back to what this strategy ultimately delivers. From 2026 to 2030, we will focus on 5 clear strategic outcomes, each of which is designed to build a stronger, more resilient and sustainably profitable commercial bank. We will draw a line under the legacy book, improving the quality of our balance sheet, freeing up capital to deploy towards higher return opportunities. We will reshape our business model to be more capital efficient, fee-driven and anchored in stable, lower-cost deposits, improving resilience and profitability across the cycle. We will position the bank to capture growth from categories, SMEs and affluent clients, all of which are underpenetrated segments where we believe we can deepen relationships and drive value. Fourthly, we will continue to build on what we have thus far done with AI and use it to enhance service, automate operations and improve decision-making across the bank. And finally, overall, we aim to deliver shareholder returns through disciplined execution of our strategy and a sustainable dividend. Together, these actions will ensure we stay true to our commitment to deliver safe, sustainable profitability and long-term value for our shareholders. Thank you. And I'll now pass over to Noman, who will talk to the results -- full year results for 2025, and then we will take Q&A.

Hello, everyone, and thank you for joining in. Getting into the results for the year ended 31st December 2025, I will focus mainly on Slide #14, which shows the consolidated financial highlights of the group, both on a reported and also after excluding the impacts of the long-term incentive scheme. In summary, the group reported a net profit before Pillar 2 tax of QAR 2,384 million for the year ended 31st December 2025 as compared to QAR 3,032 million for the year ended 31st December 2024. Core income momentum remained positive with net interest income up by 3% and fees and other income up 10.8%, supported by continued balance sheet growth. The year-on-year decline in profit primarily reflected higher net provisions, increased operating expenses, including IFRS 2 related long-term incentive scheme movements and a reported loss of QAR 144.7 million from our Turkish subsidiary, which includes the impact of hyperinflation. Further, due to the potential implementation of the BEPS Pillar 2 global minimum tax, a tax charge of QAR 179.4 million was recorded, and our reported net profit after tax was QAR 2,204.9 million. I would like to highlight that the group may benefit from certain available relief on the finalization of the draft executive regulations, resulting in the reversal of the Pillar 2 tax charge in 2026. Talking about our core businesses, our retail and wealth business continues to deliver good and consistent returns. Our retail lending grew by 4.8% year-on-year. On the wholesale side, despite a challenging year, our lending book grew whilst we also continue to focus on transaction banking services. Our associates continue to perform well with a 23.2% increase in their contribution as we continue to work closely with them in the execution of their strategies. If we deep dive into the numbers in relation to the net operating income, our reported operating income is higher by 5.1% year-on-year. This is driven primarily by increase in net interest income, net fees and investment income. This was offset by increase in foreign exchange movements from our balance sheet management strategies. Moving on, our net interest income increased by 3% year-on-year. Firstly, in relation to interest income, the gross interest income increased by 2%, driven by interest income from investment in debt securities, offset by lower interest income from loans to customers, primarily driven by reduction in market interest rates. In relation to interest expense, whilst we had a reduction in interest expense on customer deposits due to a change in deposit mix, including CASA increase and decrease in deposit rates, this was outweighed by higher interest expense due to increase in our debt securities. As a result, our net interest margin stood at 2.2%, which we have maintained from the third quarter levels. NIM pressure is mainly due to stiff competition for domestic deposits, refinancing of some of our medium-term debt issuances, which were previously at a lower rate and repricing lag between loans and deposits. For 2026, we will work towards maintaining our NIM around 2.2% with a downward pressure of 10 basis points. Our strategy will include to aim to optimize the funding mix by increasing CASA deposits and also improve the deposit composition in the overall funding pool. Moving on to noninterest income. Our core net fee and commission-based income increased as a result of retail banking fees, including wealth management and remittances and on the wholesale banking fee side, in particular, cash management and payments. Further, there was also an increase in the group's income from investment securities. In terms of operating expenses, the reporting operating costs were higher year-on-year, primarily due to bank's staff, technology and automation-related costs, along with increase in operating costs from our Turkish subsidiary, which included certain rightsizing initiatives. Further, the lower operating expenses for the previous year ended 31st December 2024 were also attributed to decreased staff-related [indiscernible] costs due to decline in share price. If we were to exclude the [indiscernible] impact on operating cost, the year-on-year increase is 6%. As a result, the group's reported cost-to-income ratio reached 29.5%. At domestic level, the cost-to-income ratio on a reported basis now is 25.5%, supported by investment in key identified areas. Alternatif Bank reported a cost-to-income ratio of 75% compared to 114.4% in the same period in 2024. Our cost-to-income ratio will improve structurally driven by digital simplification, operating leverage and cost discipline. Going forward, we expect to maintain positive jaws, reflecting revenue growth outpacing cost, not in just 1 year, but consistently across from the cycle starting 2027. Moving on, the net provisions increased to QAR 1,193 million for the year ended 31st December 2025 from QAR 467 million in the same period in 2024. In relation to provisions to loans to customers, we continue to build our loan provisions in 2025. There was an increase in our gross provisions, which was in line with the management's approach of building provisions in the second half of 2025. This increase was offset by significant recoveries of approximately QAR 700 million for the year as we continue to focus on remedial activities. It should be noted that our Stage 3 coverage ratio has improved to 60.4% from 52.8% in 2024 and the NPL ratio slightly decreased to 6.1% from 6.2%. There is also a reduction in Stage 2 balances and our Stage 2 coverage ratio increased to 10.4% coverage ratio from 8.2% reported in 2024. For 2025, our net cost of risk on loans was 75 basis points, while the gross cost of risk was 148 basis points, our significant recoveries helped us reduce the net cost of risk to 75 basis points. For 2026 and 2027, as we said before, we expect an elevated gross cost of risk at a slightly lower level as compared to 2025 and our net cost of risk to be between 80 to 100 basis points, slightly elevated when compared to our normalized levels. If the recoveries -- if the level of recoveries dip from what we expect in a single year, there is a risk that our net cost of risk will be elevated in that year. From 2028, we expect a reduction to a more normalized net cost of risk of 70 to 90 basis points. Moving on to the balance sheet. The total assets were up by 16.4% year-on-year to QAR 192.9 billion. Loans and advances to customers increased to QAR 104.5 billion, which includes an increase in acceptances, which are trade-related items. If we exclude the increase in acceptances, the loan growth is approximately 5.7%. This is driven by growth in wholesale lending, both in government and public sector as well as corporates. Further, our retail lending also continued to show good progress with 4.8% growth year-on-year. Going forward, we expect loan growth roughly 3% per annum in the medium term with prudent risk management. On the wholesale side, our focus will be to grow lending on higher return customer segments and high-growth sectors. On the retail side, we will aim to accelerate growth in the Qatari's customer segment and maintain our leadership on the expat segment. Customer deposits increased by 16.2% to QAR 89.4 billion at 31st December 2025. This is mainly driven by increase in time deposits as well as CASA deposits. Further, we continue to grow our low-cost deposits, which increased 4.5% year-on-year, reflecting our effort to diversify funding sources and strengthen balance sheet resilience. Our capital remains strong. CET1 ratio and capital adequacy ratio stood at 12.2% and 17.6%, respectively, as we continue to generate profit and also focused on active capital management. CET1 remained at similar levels post dividends. At the same time, the total CAR for full year 2025 increased to 17.6% from 17.2% in 2024, mainly as a result of AT1 capital, which increased due to lower deductions. Going forward, we will focus on sustainable dividends whilst maintaining strong capital levels. Alternatif Bank reported a net loss of QAR 144.7 million for the year ended 31st December 2025 compared to a net loss of QAR 85.2 million for the same period in 2024. Although there is an improvement in performance at the operating profit level, the results were impacted by higher operating expenses due to certain rightsizing initiatives as well as higher net provisions. Overall, the impact of hyperinflation accounting is QAR 310 million for the year ended 2025 across various lines. Commercial Bank will continue to report under IAS 29 till Turkey continues to be classified as a hyperinflationary economy. And accordingly, there will be an ongoing impact to the profit and loss of Commercial Bank. Alternatif Bank at a consolidated CD level represents only 4% of the overall balance sheet size. This is all from my side. Happy to take questions now.

Thank you, Noman. We can now move on to question and answers. [Operator Instructions] We have question from Rahul Bajaj.

This is Rahul Bajaj from Citi. I have 3 set of questions actually, if I may. The first one is on the legacy exposure. And I see that you plan to draw a line under the legacy exposure and maybe do some accelerated provisioning over the next couple of years before provisioning normalizes. To my understanding, provisioning on legacy exposure has been an ongoing exercise for most part of the last 10 years of CBQ as far as I remember. Just wanted to understand what is left in the legacy exposure now? If you can provide us some more color about the size of the legacy exposure, the coverage levels you hold or kind of what kind of loans these are on which you continue to provide for the last 10 years and expect for more provisioning for the next few years as well? So that would be my first question. My second question is on dividends actually. You've talked about sustainable level of dividends going forward. Can you please help me understand what do you mean by sustainable level of dividends? Can you provide some color around a payout ratio that you will target? Or will it be a Qatari Riyal amount of dividend which you will try to keep at fix? Any further color will be appreciated. And related to this is actually on the buyback as well, which you announced last year. Could you please provide us some guidance on where we are in that? And is that still on the table? So that's my second question. My third and final question is just on the tax element, the BEPS tax element. So the 2026 targets that you have provided, does that include the tax reversal or what tax charge are you assuming in your guidance for 2026? And what tax percentage are you assuming for the 2030 targets that you provided? So that is what I have in terms of questions.

Thank you, Rahul. I think a sneaky [ for ] questions. On tax, Noman?

Yes. On tax, Rahul, so we -- from a budgeting perspective and target perspective, we have not taken the impact. So that reversal will further benefit the numbers.

Yes. So that's clear. It's not in what we're showing. It will be upside. On dividends, very clearly, we are targeting paying a consistent sustainable dividend of 0.3 per share, so, replicating what we announced at the half year each year, subject clearly to Central Bank approval. In terms of the buyback, no update on that from what we've previously said. And then on the legacy exposure, do you want to just frame -- I mean, I'm the new boy here. So I've come in and looked at this very -- in a lot of detail over the last few months. We absolutely do want to draw a line under it. The intent of what we laid out today is very much to do that with a clear time frame. To be fair, I think it echoes what we said in Q3. In -- at the end -- at the half year, because clearly, I've read all the transcripts and listened to the call, what we said was it will probably take an extra year from what had been previously indicated. So I think we've been consistent with that. And then just on the -- one thing to highlight, we have, and I think this is evidenced in the achievements in 2025, we have a very, very good debt workout team, hence, the strong recoveries from our remedial unit. So as Noman said, that his accounting conservative hat on, if the recoveries from remedial are less than we expected, then obviously, the provisioning number may be net higher. But more positively, if we exceed, then it is very much my intention and supported by the Board clearly to accelerate provisioning with respect to the legacy book. Noman, do you want to add?

So Rahul, just to reemphasize, right? So what we said was for 2026, 2027, as we said before, an elevated gross cost of risk, slightly lower as compared to -- at a slightly lower level as compared to 2025 and our net cost of risk of between 80 to 100 basis points for 2026 and 2027, which is slightly elevated from our normalized levels. And then from 2028 onwards, we will see a more normalized net cost of risk of 70% to 90%. So I think from a journey perspective, we have -- we are moving in the right direction. You can see some of the benefits as the coverage ratio is improving, and you can also see the reduction in the Stage 2 loans as well. So there has been a reduction in that population as well. So I think overall, that is how we are addressing it.

Rahul, probably to help a little more. We're not -- the legacy book is a legacy book. We're not adding new things to it, to be clear. So this isn't sort of a dripping bucket where it leaks and then we have more. It is a ring-fenced portfolio now called the remedial book. Happy to go into that further with you offline, if that's helpful. I suspected the provisioning may be a major part of this call. So I suspect there'll be more questions.

If I can just clarify a couple of things. So just on the BEPS Pillar 2 tax, Noman. So from what I understand, and please correct me if my understanding is wrong, whenever this year and this kind of new ruling comes out and you're allowed to go for a lower tax, does this mean that the tax you've paid for or accrued for in 2025 also gets reversed in 2026?

So right now, we are just making an accrual, Rahul, as the first tax which is required to be paid is by 30 June 2027. So we have 18 months to pay the tax. So we haven't paid anything. That is why we are just accruing. The thing is that we are just waiting for the draft executive regulations to be finalized and published. So that is -- once that happens, hopefully, we can reverse the whole accrual. So we haven't paid anything so far.

And we believe, Rahul, we've taken the necessary actions to qualify for what we hope to see or anticipate seeing in the regulations if and when published or when published. So we have to get below certain thresholds, and we took lots of actions prior to my arrival to be fair, to basically get within the various thresholds to qualify for this.

And do we have any visibility on the time line? When can we expect clarity on this topic?

I mean we are hopeful in 2026.

We have the next question from Waruna Kumarage. Okay. So we'll go to the next question from Aybek.

The strategy update very useful. So I would like to ask about the -- first off, loan quality, right? Can we be confident that there will be limited spillovers or no spillovers from Stage 2 into Stage 3 from 2026 onwards? That's one. And secondly, you mentioned about the funding franchise, focusing on the lower cost deposits. Can you bit elaborate what are the main steps you see there to improve the quality of funding? -- in a market which is fairly mature and competitive, right? What should allow you to materially improve your funding costs and materially improve the resilience of the funding franchise? That's my second question. And thirdly, with regards to growth, I've heard you about the loan growth, 3% per annum, focus on affluent SMEs. How do you assess the health of the private sector in Qatar? Is it sufficient to bring back the loan growth to maybe high single digits, right? Or do you have to really kind of budget in public sector demand in your equation to meet your growth targets, right? And what's the international agenda? Are you planning to grow your international subsidiaries, your loss of the international subsidiaries? What's the plan here? And if I may add one last question is about your subsidiaries in UAE and Oman. Any change of views with regards to your commitments to the subsidiaries -- sorry, equity associates that you have in these 2 countries?

Okay. So if we first start with the movement from Stage 2 to Stage 3. So that is in line with our cost of risk strategy where we are ensuring a faster churn in the NPL portfolio, which will eventually help us reduce the NPL ratio to below 5% going forward. And as we move from -- as we reduce the Stage 2 population and some migration to Stage 3, that is why we said that in 2026 and '27, we expect a slightly elevated gross cost of risk. And then from 2028 onwards, the net cost of risk coming down to 70 to 90 basis points. In relation to funding costs, right, so our focus as part of strategy will be that we will be improving the deposit composition in the overall funding pool. And as part of that, we are focusing on increasing our CASA deposits further, which will obviously help reduce the overall cost of deposits. So this will help address some of the margin pressures. And this is linked clearly to the strategy, how we are going to action and address both on the retail and wholesale side.

Just let me just chip in on that because clearly, with my strategy hat on, it's this is one of the things I highlighted we needed to focus on the challenges of the next strategic period because our funding cost is relatively high. But we have one of the highest funding costs in the market. And clearly, we need to address that. To your question, do we think there's a capacity to do that? And the answer is yes. And we have actually over the last period or last few years already doubled our CASA deposits. So we genuinely think the penetrate -- there is more opportunity there to penetrate more. Clearly, it's going to be very -- because everybody is clearly looking at this space. But we have to focus on it because if you run the slide rule across the market, which I'm sure you've done, our cost of funding is relatively high. That's why we've got to change the mix. And as I say, we believe we can do it. I can answer the last one and then you have a go at loan growth. So in terms of Oman and UAE future, we believe there's lots more we can do together. I believe there's lots more we can do together in terms of strategic outlook, very much continuing to be long-term strategic partners for both Oman and UAE. And I think Alternatif Bank as our subsidiary remains core and strategic. And we have, I would say, derisked Alternatif Bank over the last year. So in terms of the overall position of the percentage of the group's balance sheet, I think it's 5% now. So it's not a big part of the group, but it's clearly a market strategically together with clearly where we're based here in terms of our home market, Qatar. There's a lot that happens between the 2 markets, and I think there's more that we can do together. We will also see clearly in 2028, fingers crossed the end to inflation accounting. So we will no longer see the complexity you see flowing through our P&L -- with inflation accounting if we get to a 3-year cumulative position of less than 100% of inflation at the end of each year. So you add the 3 numbers up. So I think we can be reasonably confident for full year 2028, we'll no longer be applying inflation accounting with respect to Turkey. And myself and the team are in Turkey next week very much to focus on what more we can do together as a 100% shareholder and as a strategic partner. So that's the subsidiary and associates and the private sector.

Yes. So if I talk about loan growth, overall, if you look at the macro level, as you know, that the overall GDP is growing in Qatar 6.1% in 2026 and 7.8% in 2027 on an overall basis. What we see is that the level of activity in the non-hydrocarbon sector is also increasing year-on-year, lots of activities and various initiatives being taken, which are benefiting. So how it will all translate and how where we will get involved is that we expect that our loan growth to be around 3%. And if I can just deep dive into it on the wholesale side, our focus will be to grow lending on higher return customer segments and high-growth sectors, and we will be reshaping the profile of the lending book to diversify across various sectors. And the kind of sectors we are talking about is some of the energy-related downstream services and contractors, some of the logistics and transportation business and again, infrastructure, utilities and the education sector. So there are a certain targeted area where we will be focusing on. In addition to that, on the retail side, we will, as we mentioned, continue to maintain our leadership in the expat segment, but importantly, accelerate the growth in the Q3 customer segment. We would expect that as per our strategy, the retail book will increase by 50% in 2030 from the current levels.

So that 3% to 4% -- 3% to 4% over the strategic period loan growth, but being very disciplined around the returns that we get with the deployment of that balance sheet and being much more disciplined around cross-sell. We actually have very, very good transaction banking, cash management, trade, et cetera. So we have a good proposition. We need to sell it more into the customers we're lending to. So cross-sell both on the wholesale side is important. And on the retail side, clearly, we have a good position already in terms of cross-sell. But when you look at the customer base even on the retail side, we are underpenetrated even for those we're currently selling wealth product to -- and we believe there's a nice segment we're not penetrating at all. And hence, the focus on the category proposition, both for the affluent categories and the private banking segment onshore. So we think there's capacity to support that loan growth. But to be clear, it's going to be disciplined above hurdle growth to make sure that we improve our ROE.

There are 2 questions from Andy on the Q&A box. The first question is, will management take more tax accruals in 2026 until ruling on -- are these accruals in guidance too?

So the answer is yes, given that the draft executive regulations have not been finalized. So from a technical perspective, we would need to accrue tax. So we will expect until they are finalized and published, yes.

And is it included in the targets included in this?

The answer is no. So we will have an upside when we...

I think -- so the question is that going -- if we have incurred tax going forward, is it included in here? -- so yes and yes is the answer.

The second question from Andy is what policy rate changes are assumed in NIM guidance? And also, can you give us a sense of NFI growth you expect after a big jump in 2025 and the range of plans you highlighted in the presentation?

Right. So from a NIM guidance perspective and the policy rate, as you know, this is a bit of a moving topic. What we are assuming is 2 rate cuts of 25 basis points each. So that is what we are working towards. The Fed may have one rate cut of, say, 50 basis points. So that's what we are working towards. On the NFI, so there was an increase in NFI during the year. Some of the fee income actually in the last quarter was -- some element was one-off fees on some wholesale customers on the settlement on some of the remedial accounts. So on the fee income side, we would expect there will be an increase from last year, but not at a 10% increase that we had this year. But we are expecting to have fee increase both from a retail and wholesale perspective, which is in line with our strategy focused on having capital-light and more fee-driven business.

And just clearly on what I just spoke to, I think it was probably before the question came in on both the retail and the wholesale side. The cross-sell will generate clearly NFL.

We have a question on the question. Can you actually unmute yourself and ask a question, Yew Thong Choong?

Thank you. Yew Thong here from L&G Asset Management. Yes, I'd actually like to focus more on maybe your international business because you has previously talked about sort of improving your capital efficiency by deploying into higher return business. So far, your Turkey business hasn't been the best return over the past few years, but you just talked about like owning 100% of it and thinking about what you can do more together. So I was just wondering whether the management will be committed to invest more capital into this international business in Turkey? Or what are your thoughts around it?

So from an equity perspective, we don't actually see during the plan period a need to invest further equity, certainly not in the capital plan. So we think we can leverage the portfolio as is and the capital base as is to generate the upside that we have baked into the plan. And as I said, there's going to be quite a nice uptick in 2028 when hopefully, we don't have to apply inflation accounting anymore because the returns from the underlying business, and this isn't just as it's across the sector for those who own international financial organizations own banks in Turkey. Clearly, when you consolidate the returns aren't great always because of inflation accounting. But the underlying business is nicely profitable and achieving an ROE well above the cost of equity. Yes. So that 2028 event will actually help a lot. I would say that there is a lot more that honestly can be done between us strategically. And I think it doesn't require additional equity in my humble opinion. And that is in essence what we planned during the period. So clearly, we've done a lot of good things in Qatar on the retail side. It's applying the learnings we have here to our retail business, which is relatively nascent in Turkey. But to sort of share the lessons learned on how we manage the business here. Just simple things like that, I think, will unlock some nice value.

Understood. And just a second follow-up question. Yes. Sorry. So the second question, maybe more on the asset quality. So I think that the long-term target of 5% -- below 5% in NPL and then there's above 70% in coverage, that is still slightly worse than industry average. So I was just wondering if that's the threshold that the bank will maintain in the long run? Or is there some targets in mind in a more sustainable long-run situation?

I mean 2030 feels a long way out from where I'm sitting today. So I'd love it to be lower than -- a lot lower than 5% and greater a lot higher than 70%. But given we're talking 2030, I think to be honest, let's say, if people look at 2 years out from an interest rate risk forecasting perspective and currency risk. So I don't think we should be going beyond 2030, honestly. But aspirationally, clearly, we'd like the 70% to be higher and the NPL to be lower.

And just to add, I guess, one -- sometimes we have a technical point there that in Qatar, sometimes any write-offs which happen need Central Bank approval, which happens once a year annually. So sometimes we'll have loans which are 100% provided, but we're not able to write them off and hence, that also slightly inflates the NPL ratio percentages.

We have our next question in the Q&A box. Can you please -- from -- can you please comment on how you see NII and NIM trajectory in 2026, including Fed rate expectations? The Central Bank of Qatar rate expectation baked into your forecast?

So I mean, as I mentioned that from a forecast in 2026 perspective, we are currently budgeting like 2 rate cuts, 25 basis points each. How it will translate into NII. We are still expecting NII to grow by 3% in 2026. Again, that will be driven by focusing on high return segments on the lending side and then reducing our cost of funding. On the NIM, as we mentioned that for 2026, we will work towards maintaining NIM around 2.2%, similar to the current level and from third quarter with a downward pressure of 10 basis points. We will aim to optimize our funding mix by increasing cost of deposits and also improve the deposit composition in the overall funding book. I hope that answers your question.

We have a question -- Waruna if you are still on the call.

I have 2, 3 questions. The first one is on the NIMs. You gave the guidance on NIMs, but I just want to clarify when I work out the NIMs for the fourth quarter, specifically, there was a slight improvement. So I was wondering what kind of -- what was behind that? I mean is it like a temporary blip? That was my first question, although it was a slight improvement. Secondly, on the -- there are these acceptances which drove your loan growth earlier in the year. I wanted to understand what is the circumstance? I mean, what is the nature of these acceptances -- and what -- I mean, how long do you think these acceptances will be in the balance sheet and which sectors are these related to? I mean, which sector breakdown can I find this? Then the last one is, I think just to clarify your answer to earlier question on the legacy portfolio. I mean, these legacy assets, are these in real estate segment or any other segment? Just want to clarify that.

So firstly, on the NIM, I think you're looking at quarter-on-quarter. So I think the NIM was impacted -- so the -- it was impacted by obviously some of the rates as well as there was an interest in suspense, a small amount on one of customers, which impacted the NIM there quarter-on-quarter movement. On acceptances, basically, as you can see that from the third quarter, the -- it has come down by like QAR 800 million. So we would expect that these are trade-related items. It can go from 3 months to 12 months. And then we would expect like a gradual decrease during the year on acceptances. And that is why we are transparent when we communicate that whatever our loan growth, excluding acceptances, we kind of focus on that. So from a sector perspective, they are related to trade related in various segments. So it will be in various kind of consumer services, various sectors involved in that. On the legacy assets, so I think, yes, I mean, it is indirectly, directly related to real estate sectors. I mean that would -- if you brought in and out, it will include hospitality, residential and commercial real estate. So that's the kind of the whole legacy book, primarily real estate related.

Okay. That's clear. Just regarding the acceptances, now the interest -- like the margins on the acceptances are like negligible, right? Am I right?

So no, the acceptances are basically they are fee earning. So that is why when you do the NIM calculation, they're not an interest-earning assets. So we do the calculation excluding that.

And their instruments were up to 1 year, yes.

Yes. So Waruna, just to highlight you these acceptances are backed by deposits as well, structured deposits.

We have a few questions from the Q&A box. The first question is, what are the factors that caused CBQ to increase net provisions to a very high level as compared to the previous years?

I think -- thanks for the question, first of all. So I think if you look at our gross provisioning for the last few years, it has been over 100 to 210, 20 basis points. So we have been consistently higher. I think in 2024, it was at around slightly lower. But overall, if you look at the longer picture, we have been reviewing our portfolio. And as we go along, as we mentioned at the third quarter that as part of the reassessment and reviewing of the portfolio, we will continue with our journey, which will mean that for 2026 and 2027, we will have elevated gross cost of risk and then a net cost of risk between under 80 to 100 basis points and then normalized level from 2028 onwards. The key point there is that we have significantly increased our recoveries as well. So the net cost of risk this year was 75% as we benefited from our recovery. So as we go along on our journey for another 2 years on an elevated level, our recoveries will also benefit us to reduce the net cost of risk.

The second question of...

So, I was just going to say, if the underpin to that question is, did anything in particular happen that led you to take a higher provision the answer is no. It is in the spirit of drawing a line under the legacy book and taking advantage of higher recoveries to do that. And as I say, we remain very, very focused on recoveries. So hopefully, we can ideally, if there's a higher recovery, we'll make a higher provision. So it's really the net that we're looking at, hence, the guidance, 80 to 100 for the next 2 years and then 70 to 90 thereafter. Sorry, second question.

The second question is, why is that CBQ increased the net provisions even when you could pull profit down drastically.

Did we answer that one?

So I think, yes, I mean, as we mentioned that we are consistent with previously, we are on a journey and recording provision from an accounting perspective when required. So what we feel is that as we continue with our journey, we will absorb the provisions as we go along, and that is why there's no drastic impact on our net profit because of that. So it's part of the business as usual provisioning.

And I think the underpin of that question is why didn't you have a higher P&L by having a lower provision. And that's certainly not something I would support. We want to get our arms around the legacy book and draw a line under it. And I think if we were to do that, we wouldn't be doing so. And I don't think that's good appropriate management. So that's not me, I'm afraid.

Okay. The third question is, please provide specific of legacy loan book as to total amount outstanding as at end of 2024 versus end of 2025, the percentage of recoveries made.

So it's the same question Rahul asked at the beginning of the call. Are we prepared to give absolute numbers? I don't think we've done so before, have we.

We haven't given before. But I mean, as we can say, like if you look at some of our Stage 3 and Stage 2, it's primarily real estate driven.

So listen, leave that with us as Rahul asked it as well. We'll have a think about how we can be more helpful if and how we can be more helpful in that regard. I get the question. I know where you're coming from.

We have 2 more questions from [ Janany ] on the Q&A box. When will the [ LTIPs ] expire? And what would be the capital impact? As remember, you were expecting some capital enhancement from that.

Just on the second part of the question that the impacts of LTIP, especially on -- see they're already capital deducted. So we don't see any capital impact from regulatory capital, any -- those long-term incentive shares, which you can see on our balance sheet are already capital deducted. So there's no impact there.

Second question is, do you expect [indiscernible] to be fully out of equation by 2027? Where do you see Stage 2 share buyback.

So I think the -- from a provisioning perspective, as we mentioned, 2 years of highly elevated gross cost of risk. I think what we will expect is that the NPLs will reduce from 2028. And then as you can see from a Stage 2 perspective, there is a significant -- there is a reduction at the year-end. However, by 2030, we will -- we are aiming to keep the Stage 2 percentage around 15%. So that's what we are working towards.

Okay. We don't see any more questions. There's one more from Aybek on the Q&A box. Other provisions, QAR 258 million in full year 2025. What drove a big increase in Q4 versus 2024 Q4?

Yes. So Aybek, there were like a couple of elements in there. One was we took some impairment provisions on some of our repossessed property revaluations. And secondly, there was a modification loan on a -- modification loss on the restructuring of a loan. This is disclosed in our financials as well. So you can see that in our disclosures. So those are the kind of 2 main elements of that.

That's the end of the Q&A from the audience. So that's the end of our full year results and the strategy update. We thank you, everyone, for joining this call, and have a good day.

Thank you very much. And listen, if you've got follow-on questions, Farhan and Noman and myself as necessary, and I look forward to engaging with you over the next few months as you wish. So thank you very much for your attention and for attending the call. Thank you.