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

Good afternoon, and welcome to Commercial Bank's Q3 Investor Presentation. This is Zubair Chaiwalla. I'm the Head of Investor Relations. And with me, we have Joseph Abraham, the Group Chief Executive Officer for Commercial Bank; Rehan Khan, the CFO; as well as Kaan Gür, the CEO of our Alternatif Bank, our subsidiary in Turkey. During the duration of the speakers talking, we will keep you on mute. And I'll get back to you at the time just before the Q&A. I now hand over to Joseph Abraham, the Group Chief Executive. Joseph, over you.

Thank you, Zubair. And welcome to everyone who are joining us today. I would like to update you first on the outlook for Qatar. At the last update, which we did after our half yearly results, I had mentioned that I've been here 5 years, and this is the most positive time that I'm seeing for Qatar and the economy. And I would say that -- I would reiterate that position. If anything, the outlook has improved. A number of factors. One is oil and gas prices are even higher than what they were in July when we had this last conversation. And secondly, the opening up of the economy from a post-COVID basis is happening. So as an example, 80% of Qatari residents are now vaccinated -- double vaccinated. In fact, now we are expanding to everyone over 50 will be offered a booster shot, and that will be all. Secondly, the opening up of the Qatar for visitors has now also been extensively opened up. I think there's a limited list of red countries who, if you're vaccinated, you need a 2-day quarantine, which is not too long. So we see that also picking up. And then thirdly, you're also seeing momentum around the sports activities, which will -- so you've got the Arab Cup going on. You also have the announcement about the Formula 1 happening in November. So this is creating benefits in terms of tourism, hospitality. And many exhibitions are already happening. We had Doha Real Estate Exhibition recently and a few others. So you're seeing that return to normalcy happening, and these are good, let's say, testing ground for next year's World Cup and Formula 1, et cetera, et cetera. So I think that shows that the outlook for the economy is good. The IMS shows growth for this year at 2.4%, the next year at 3.6%. I think, if anything, there's upside risk in that. So -- and the fiscal situation is likely to continue to improve in terms of -- I think there was likely to be a fiscal surplus this year. Now in terms of the bank's performance, I would say, as you can see at our headline, we have grown by approximately 85% year-on-year. Of course, that is flattered by the fact that we are taking impairments this year in Q4, whereas we took them every quarter last year. But even if you strip out the effect of that, year-on-year, we are still up at domestic by about 23% and at a consolidated level by 32%. So I'd say it's a positive performance. In terms of our loan growth, one of the factors is that the government has some surpluses available, I think, as a result of the oil and gas prices. And so some of the government funding that has been taken from the banks is being paid down. If we net off that effect for this quarter are sequential, which is quarter-on-quarter growth, would be about 2.3%. So that's still going on. And -- but I think that is a factor, which will impact the entire banking system in the sense that you could see a paydown of government borrowings in the third quarter -- sorry, in the fourth quarter, too. So the loan growth in the underlying business still remains, and we have a good pipeline, but the overall could get affected by a further pay down of government borrowings in Q4. And this is not restricted to us. It's across the entire banking system. But to my mind, that's fine because that shows the healthy position of the government, too, and it's a positive indicator for the overall economy as government spending continues on various infrastructure and other pro-related projects. So I would say in terms of our international associates and subsidiaries, first of all, both NBO and UAB, National Bank of Oman and United Arab Bank, both in EU and the UAE, both are performing and are showing positive trends in terms of their profit generation. Even our subsidiary in Turkey, Alternatif Bank is showing a positive trend in terms of its profit as compared to the earlier part of the year and return to an overall profit. Of course, there is some volatility in terms of the currency, which will flow through to our CET1, and Rehan will talk through that in greater detail. It will be a few basis points impact. But I would say that, as we've said for a long time, we are managing our Turkish operation for risk and reducing foreign currency loan exposure. So that is an ongoing approach, which we've been calling for the last few years, and that's how it will be. But over the long term, the Turkish operation will continue to be a smaller and smaller part of our balance sheet and our profits. So the volatility emanating out of that will be reduced and further reduced over time. So I'll hand you over to Rehan now, who will speak in more detail about the financial figures. And then, of course, after that, Kaan Gür will speak for a short while, and then we will be open to any questions. Rehan?

Yes. Thank you, Joseph, and good afternoon, everyone. I'm going to focus mainly on Slide 7. And just to recap on the left-hand side, we've got the normalized columns. And on the right-hand side, we've got the reported. And this is really to strip out the impact of IFRS 2 on both operating income and costs as a result of the staff performance scheme that we have in place and whereby the reported numbers do change as a result of share price movements. So I've taken those out in the normalized columns, and that then gives you the underlying trend. As we've seen, the overall profit is QAR 2.132 billion for the 9 months year-to-date with a quarter profit of QAR 805 million. As we look at, firstly, operating profit and what's generating that, on the balance sheet side whereas loans are up approximately 12% year-on-year, there is a bit of softness in the lending and similarly in the deposits in the quarter. And Joseph highlighted the main aspects of that. Clearly, we have a very liquid market at the moment, and we are seeing some of the temporary overdraft from the government being repaid. Having said that, the underlying loan growth was still around 2.3% for the quarter, if that is taken out. On the deposit side, there is a 2% fall in deposits. Again, average balance sheet was a very different story to what the quarter end spot amount is. And in fact, in the first 3 weeks of October, we've already seen a very strong deposit growth again. So I'm not really concerned about the deposit levels. I think the market is liquid, and we'll see deposits grow in the fourth quarter. In terms of income at QAR 3.490 billion for year-to-date and QAR 1.206 billion for the quarter. You can see that the net interest margins are 2.7% for the quarter, 2.6% for year-to-date versus 2.4% a year ago. And in fact, within domestic, the net interest margin is now at 2.8%. I think the net interest margin will continue to improve as we've seen throughout these last few quarters. We have good momentum in the business, and we expect that to generate higher net interest margin going forward. On the noninterest income, we did see a little bit of decrease quarter-on-quarter, about 7%, mainly on fees and FX. Having said that, the retail business is beginning to see volumes returning to sort of pre-COVID levels. These include new account acquisitions, cross-sell activities for products such as personal loans and credit cards. Volumes in our brokerage has also been significantly higher. And domestic spending on cards now exceeds pre-COVID levels. Only on international, we see that the levels have not been reached to pre-COVID levels yet, which is understandable, but it is ticking up quarter-on-quarter and month-on-month. When we look at costs, we can see the costs are pretty stable quarter-on-quarter. They are up year-on-year, and I wanted to explain that a little bit. We have been managing our balance sheet, and we have been looking at the collateralized collateral that we have realized over the last few years. And we've entered some sale and leaseback contracts, which is obviously making our balance sheet more efficient. It does mean that we have leasing costs under depreciation, and that is the main driver for the cost increase. If you strip that out, underlying costs are still decreasing year-on-year. So operating profit for the quarter at QAR 919 million was a record. If we then look at provisions, slightly lower than the previous couple of quarters. We -- that's mainly because specific provisioning was lower. We didn't see an increase in specific provisions. We've kept our ECL provisioning at similar levels. We're now 8.4% coverage on Stage 2 loans, which is one of the highest in the banking system here in Qatar. So we're quite well provided there. And even on nonperforming loans Stage 3, our coverage continues to go up. We're just under 75% covered now on Stage 3. And as you know, that doesn't include the collateral that we hold, again, Stage 3. So our recovery process is still going on, and we expect to realize more recoveries in the fourth quarter. In terms of cost of risk, that's now at 74 basis points for the 9 months and within the guidance that we gave of 70 to 80 basis points for the year. NPL ratio continues to track down. It was 4.8% a year ago, 4% now. And our coverage ratio also including ECL is 115.9% versus 94.5% a year ago. Again, as Joseph mentioned, there is an impact on the Turkish lira depreciation on our CET1. So it went down from 12% to 11.9%. I can see that ending up around 11.7%, 11.6% for the year and given the further depreciation that we've seen in the Turkish lira. Overall, our capital is at very strong levels. I'm satisfied with the levels at 16.2% and 18.3%, respectively, on total CAR. And that's within -- well within the other banks in Qatar. Just going back to associates. Again, I just wanted to highlight that both UAB and NBO are turning in stronger performances than last year. And we've updated our valuation models on the basis of the first 9 months results. We've now shared that with the auditors. And as I highlighted, we've now reverted back to that impairment exercise on a yearly basis in the fourth quarter, whereas in 2020, we had done that quarterly. So we expect to conclude that within the next few weeks. I had given a guidance of QAR 400 million, and I expect that to be very much at the higher end of where we finally end up overall. So I'll now hand you over to Kaan Gür to give an update on Alternatif. Over to you, Kaan.

Thank you. Thank you. Good afternoon, all. I would like to say that the first thing actually in our agenda is, although we are operating in a very volatile and to some extent uncertain environment, actually Alternatif Bank continued its cautious and selective lending approach. And I would like to especially emphasize that we have been optimizing our loan book to increasing share of Turkish lira and floating rate loans. And we are focusing on continuing effective risk management mentality within the last 3 years, actually. As a result of our actions, I can say that we have now much more improved balance sheet structure against depreciation of Turkish lira, and we are focusing on in the same time diversifying our deposit base in order to benefit from the lower cost deposits. Small ticket deposits, it is a key factor to optimize our funding costs. So we recorded 44% year-to-date increase in our small ticket deposits and doubling the number of the digital customer acquisition. As I said, despite the challenging operational environment, I can say that our asset quality improved to decreasing NPL volume and excellent collections performance, finishing the quarter at 2.9% with higher NPL coverage. On the profitability side, as I mentioned earlier, we have seen the improvement there also. We see 8% quarter-on-quarter increase in our operating income. We continued tight management at the same time of our expense base and successfully maintained OpEx below budget. And of course, the inflation, again, below yearly inflation levels. Our high asset quality, in fact, allowed a sustained downward change in our provision expenses. So we have successfully maintained our existing cost of risk, which is around 4.4%, well below sector average, which is 3.2%. I can say that following a challenging net interest margin environment, especially in quarter 1, our performance shows us that there is a successfully return to operating profitability. We see the trends. This is very important for us. We expect an increasing net interest margin trend on a quarterly basis. In the end, we closed QAR 38 million net profit in third quarter. We expect to see the increasing trend on our loan-to-deposit spread as well as in oral profitability continued in the last quarter. I'm always mentioning that the risk management in all factors, in all aspects is the hot issue in our agenda. Thanks a lot. I'm looking forward to answering your questions, if any. Thank you. I'm handing over to Zubair.

Thank you very much, Kaan Gür. We now come to the Q&A session.

[Operator Instructions] I will just pause, although we have the first questioner, but I'll pause for others to join in. The first question is now from Rahul Bajaj.

This is Rahul Bajaj from Citi. I have 2 quick questions, actually. The first one is on the noninterest income line, and then I'll split it into 2 bits. First one, fee income. I understand there is this element of IFRS 2 adjustment in the fee income line. And if I strip out the approximately QAR 87 million, QAR 88 million fee income one-off from the fee income in third quarter, the run rate is more like QAR 100 million for the quarter, if I'm not mistaken. But if I do the same process for the previous few quarters, the run rate is much higher. It's more like QAR 150 million to QAR 200 million on an underlying basis. So what is happening there? I mean, maybe I'm missing something. But why is -- why are we seeing a decline in kind of a sequential fee income trajectory over the quarters? And second part of the question is around the FX income line, where we've seen nice gains coming through in the third quarter. Just wanted to understand, is there an element of one-off there? And how realistic is this kind of gain to sustain in the future? That's my first question. The second question is on 2022. I know it's early, and you probably covered kind of formal guidance after the fourth quarter call. But any early thoughts on how you think 2022 will shape up in terms of loan growth, margins and cost of risk? It would be very useful.

Rahul, let me take those in turn. In terms of fees and FX, as you rightly said, there is the impact of the share price movement in there. So when you strip that out, underlying fees is lower. As I mentioned, there was a bit of softness in the loan fees this quarter. That's the main driver for that for the loans -- for the fees being lower quarter-on-quarter. On the FX side, no, there's no one-off elements within that at all. We do expect FX to be a bit lower though going forward in terms of what we saw in Q3. On the guidance for 2022, we are very positive about all the things that are happening in -- expected to happen in 2022. The government is still expected to play a very strong part in the economy for 2022. We're giving a guidance of around 6% in terms of loan growth. We expect NIMs to be -- it's at 2.6% now. We're expecting 2.7% to 2.8% for the full year of 2022. And we're expecting the cost of risk to be around the 60 to 80. We're giving a more broader range, 60 to 80 basis points as the cost of risk guidance for the year. I think that answers your question.

Our next question is from Aybek Islamov.

Yes. I think I wanted to -- basically, if you can elaborate more on this government repayments, debt repayments, the comment you made earlier during the conference call. You also mentioned that you do actually see a good long growth pipeline. But if you sort of put it with the repayments ahead of you, what does it mean in terms of the loan growth outlook? That will be my first question. Secondly, I believe you probably saw the Fitch report on the Qatari Banks where they raised concerns about the -- well, a strong increase in non-resin funding across the sector. Well, I guess, Commercial Bank of Qatar will also be involved, right? And that the net foreign asset position is increasingly kind of a big novel facility. So what are your thoughts on this? And yes, it will be helpful to know that. And I think on your NIM, I just wanted to understand the drivers of margins better, to what extent it's interest substance reversals that are helping your NIM in the third quarter, in particular.

Sure. Thanks, Aybek. In terms of, firstly, the loans, the repayment is of temporary overdrafts. So they were very much temporary in nature. You may recall that at the end of last year, we also highlighted that the number had gone up and had boosted the end of 2020 number, and we expected that to come back. So we have seen once or twice a bit of volatility in temporary overdrafts and that may continue in the fourth quarter. What's important for us is whether underlying business is improving and underlying, even including the government and public sector is improving. And we have seen that, as I highlighted, that loan growth was about 2.3% even in the third quarter without the temporary overdraft volatility. So I expect some more of that in Q4. On the -- and I'll answer NIM -- NIMs as well before going on to the Fitch report. Net interest margins, there's no suspended interest impact on the NIMs for the third quarter. The NIMs are really going up as a result and being robust as a result of lower cost of funding. This is driven by the work that we've done on low-cost deposits primarily and very, very strong focus on bringing down the cost of funding. The kind of products that we're focusing on does help bring in low-cost deposits like payments and cash management, remittances. These are two of the products that we've really worked hard on, and we're seeing the impact of that. I think low-cost deposits are up around 12% year-on-year and managing the loan yield at the same time. We have also increased our investments in government securities. In Q3, you'll see that in the results as well. Then thirdly, turning to Fitch report. Yes, they've highlighted nonresident deposits. Ours is -- our own make-up is 21% versus a market of 29%. To be honest, for us, the concerns, if any, have decreased, the blockade is no more. Energy prices are up. So the government is obviously seeing more revenue come through. So I think the economy is in a very strong position, and we feel that, that is going to continue into 2022 and beyond. So we weren't particularly concerned by what we saw in the Fitch report. Yes. And we've not -- we've been quite careful on nonresident deposits. We've not been growing that as a percentage of the overall deposit book. Hope that answers your questions, Aybek.

Our next question is from [ Hamid Ibrahim ].

This is Hamid Ibrahim from MK Capital. Just one question on what do you think would be the quantum of impairments that are to be booked on associates in Q4?

Hamid, I think your question was around impairments. It was -- your voice was slightly breaking.

Oh, sorry, sorry.

Yes, go ahead. You can repeat, but I think what...

Specifically impairments to be booked on associates Yes, so just kind of -- yes, sorry, go ahead.

Yes. As I mentioned, we've updated all our models based on the first 9 months results. That has now been shared with the auditors. So they are going through, and we will have these final discussions over the next few weeks. So it will be booked in Q4, if any is required. And as I've said through the year, that QAR 400 million is our guidance. We feel that's at the upper end of guidance, but it's still to be determined and still to be finalized. And once we have that, obviously, you will see that reflected in the Q4 results.

I think one factor you should take into account is the improved performance that you've seen this year from our associates, both NBO and UAE -- UAB. And I think that's also a factor in the overall final figure, which comes up as at the basis for forward projections. And we anticipate that improving trend to continue over the next few years based on the work we've done to clean up. So these are all factors, which will help, as Rehan said, to keep the impairment to -- as we said, this guidance of QAR 400 million is probably very much at the upper end of where we might actually land.

Our next question is from Edmond Christou.

Just a follow-up on the margin. I struggle a bit to understand why the asset yield is improving. I know you are taking action, but it's not very obvious for me, what type of lending or products you are getting the higher margin spread on. So it will be interesting to see how this is evolving into next year because the comments we hear from other banks is, public sector lending will slow down as prepayment kicks in. So can you give some light on what business mix you will expect CBQ to be anticipate into 2022, 2023? And this is how it's reflected on your capital and RWA. The last question is on the cost of funding, you still expect into next year, lower cost of funding or at least keeping it as low as it is now. But then your LDR is 125. And you probably -- based on my understanding, previously, you are aiming to lower the LDR over time, so what action you are taking in terms of the funding mix.

Thanks, Edmond. Let me take those. In terms of the work we're doing with the government, obviously, you've seen that our share of -- in the loan book has been increasing. So if you just look at Slide 12 here, as at a year ago, 14% of our loan book was in government and public sector, that's now increased to 19%. So this was an area where rewind a few years, and we felt we were underweight in and we did put a lot of focus on increasing this part of the overall book. As you can see, we're still less than the market average, which is around 34% -- which is 34% as of September for the overall Qatar market. So there's still scope for us to grow in this area. Strip out the temporary overdraft, which, as I mentioned, is decreasing, and we do expect that to continue decreasing in the fourth quarter as well. So underlying business, we expect government and public sector to still continue, and we want to be very much in that business. We're also a very strong player in the private sector, and we'll continue to work on those areas as well. And I think there's -- the way the economy is evolving, we expect to see a fair amount of new business in both areas going forward into 2022 and onwards. In terms of the net interest margin, what I was saying is that, yes, loan yields have decreased over the last 12 months, but our cost of funding has decreased faster than that. And the products that we're working on are generating more and more low-cost deposits, and we expect that trend to continue. And that should be the main driver of the overall improvement in net interest margins, including the fact that bringing down the LD ratio will be a function of low-cost deposits, primarily going up in the balance sheet.

On the point of the loan deposit ratio, I think the LD ratio is a very rather blunt ratio, and -- because we could always lower it by just taking on a whole load of high-cost deposits. So to us, our fundamental approach is to get the LCR and NSFR. And NSFR for this quarter is over 100%. So we have achieved what we set out to do. At the beginning of the year, we were in the 80s. I think that's strategically important for the long-term liquidity of the bank. And as Rehan said, our focus is on building low-cost deposits. And our goal is to steadily increase the proportion of low-cost deposits in our overall funding mix. So I would say that we are less focused on the LD ratio because I think that's slightly outdated and a bit blunt because you can just raise high-cost deposits if you wanted to. And we're not really into pressing up our balance sheet for the quarter and for that purpose. So I would say that's our approach. Increase LC low-cost deposits, and that will flow through to our net interest margin also. So that's our fundamental strategy. And also, as we borrow in the international markets, we've been able to reprice many of our borrowings from the earlier higher prices, and these are usually 2- to 5-year borrowings. So we've got the benefit of that in our overall cost of funding and their net interest margin.

Yes. I'll just add, Edmond, that we have a well-established EMTN program with long-term funding. So our focus is on the Basel ratios, and LCR is also well over 100%. And so we're very comfortable with the overall makeup of the balance sheet. As you well know, long-term funding is a much better way of funding to have in your books from all respects rather than short-term deposits.

Our next question is from [ Amit Mamtani ].

Most of my questions have been answered, but I have one follow-up. Can you please discuss the competition trends on both the lending and deposit side and pricing and competition for CASA deposits in particular.

I think. There will be some pricing competition for loan growth without a doubt because, as we said, as the government repays loans or its temporary overdraft across the banking sector, that will make the banking sector a little more flush with funding, and that will then flow through to increased competition for loans. So we could see some competition there and some pressure on the pricing. I would say that's the natural effect of that, so as people look to substitute their loan, so then -- and particularly in the government and public sector where there is growth potential in the loan book. So I think you'll see some price competition there. That's definitely out there in the next -- I'd say next 3 to 6 months. So I think that's -- and the second part of your question was around -- on deposits. And I think on deposits, again, like I said, the tenor of deposits in the local market is usually around maximum 1 year, a few more or 2 years. So I think some local currency deposits, we're seeing a little bit of pricing pressure. Some -- like I said, maybe there's a little bit of management of the LD ratio. But I honestly think that the market will overall remain reasonably liquid given what's happening in the economy. So -- but our focus is really on building low-cost deposits, and that really is a function of the capability that you bring to the client in terms of the sophistication of the offering, in terms of customization, speed of implementation, customizing their particular requirements. And I think that's where we have found ourselves advantaged. And therefore, pricing is always, I would say, an issue. But if you can get these other attributes right, then it helps to generate a decent overall offering and pricing becomes not the only factor. So that's the way we're going. And as Rehan said, we've grown our low-cost deposits in this competitive environment by 12%. And over the last few -- I think over the tenure of our 5-year plan, we have double our deposits, low-cost deposits and establish ourselves as a leading player in this. And we expect that trend, and it's a key strategic focus. So we expect that trend to continue.

Our next question is from Chiro Ghosh. Amit, did you have any follow-on before Chiro goes ahead?

No, I didn't. That was clear.

Thanks, Amit. Chiro, please go ahead and ask your question. Chiro, we can't hear you. We'll come back to you, Chiro. Aybek, you have a follow-up question.

Yes. I was on mute. So I guess, the follow-up is I'm just curious where are you picking up yield on assets? Is it -- I'm looking at your balance sheet, it looks like you're more active in the interbank market, but you're still a net interbank borrower. You picked up more bonds in the third quarter. And the yield pickup on the asset side, the asset you pickup has been kind of continuous over the last kind of 4 to 6 quarters or so. And you're also saying that you expect the margin to continue to improve. And when we look at the funding cost, it looks like the funding cost is close to the bottom historical kind of long-term cycle. So if you can kind of give more light around the subject, do you think you could drop funding costs lower than the current level. And on the asset yields, where is the pickup coming from?

Yes, let me take that, Aybek. Firstly, on the cost of funding side, as we're saying, the main driver will be the increase in low-cost deposits. That will be the one that will ensure that we continue to bring the cost of funding down. Some of our long-term funding, as it's been maturing, we have been replacing it with lower cost of those long-term funding. And some of that hasn't got a full year impact yet. So we'll see more of that coming through during 2022. In terms of -- on the loan yield side, certainly, some of these temporary overdraft that we had were at a low yield. So as they come out, it's actually loan yield enhancing and overall NIM enhancing. So you will see some of that enhancement coming from just the fact that these low-yielding are being repaid.

Okay. Okay. So the yield pickup is purely on the loan book, right? It's not bond portfolio. It's not your interbank, net interbank borrowing, for example...

No, no.

No. Yes, okay.

Not on interbank, but there is definitely on the bonds as well. We are seeing a pickup in the yields through the investment.

Yes, yes, yes. And one more question, if I may. So circling back to the non-resin deposits and the subject that I covered in one of my research reports is the -- it looks like after the blockade was lifted, one where we'd expect the foreign currency conditions to improve, but we've seen the increase in the volatility of the Qatari exchange rate versus the dollar, right, which suggests that there's a foreign currency deficit in Qatar, which is surprising given what's happening with the gas prices and so on and so forth, right? But how is CBQ positioned for this sort of currency conditions? Can you kind of play to your advantage whereby you sell kind of FX products to your corporate customers and you book a higher margin? And what's your overall kind of comment on foreign currency conditions today, right? Also, obviously, 4 days ago or 5 days ago, Fitch puts out this report, so I mean they appear to have similar concerns.

Yes. Look, I think, obviously, post the blockade, we are seeing more foreign currency deposits coming into the system, and that's been highlighted by Fitch. Obviously, there are more countries now who are able and willing to put deposits into Qatar than previously. So that's one aspect. On the FX side, yes, definitely, we are well positioned remittances, both on the corporate and retail side or areas that Commercial Bank has been working on and is becoming a key player. So yes, definitely, we can benefit from those increased flows and our rates will drive an improved income from FX. Having said that, we are a little careful about the amount of volume that we put through on that, and we'll keep monitoring that situation. But yes, we're well placed on FX.

Yes. I would say that, again, we are a leader in, as Rehan said, in certain segments, which are particularly sometimes price-sensitive also. So we're careful to build a long-term sustainable business. So we don't want to just price and just -- because we are here for the long term, and that would be our approach. So I would say, overall, you should expect a steady as she goes approach in terms of the ForEx revenues.

Our next question is from Ahmed Abdel Rahman.

Yes. Actually, my question was the same as the last question. Pretty much on the amount of nonresident deposits in the system reaching 30%, and this being highlighted by Fitch as an external risk. So just wanted to hear your further comment on that?

Yes. I personally think the -- I think where the rating agency are looking at is that Qatar is relatively high compared to, say, their other GCC markets, 28% to 29% versus, say, 14% in the UAE. So that's probably a red flag. But to my mind, if you look at -- we had a shock event. We had the blockade. And that was an area where you could see the foreign currency deposits actually leave, but that is only we saw our own expenses from the countries where there were the political issues from. Actually, our own experience was that we did not see too much withdrawal from the Asian countries, particularly we had from Thailand and Taiwan. In fact, we saw new sources because at the end of the day, you're getting a AA-rated country, giving you a reasonable yield. So we've been through a very significant shock event, which would impact the foreign currency flows. And that's why I would say that, long term, Qatar, it's a sustainable position because most of these countries are looking at the rating of the country. And therefore, I think it's very sustainable, unlikely to see huge outflows unless, like I said, there is some political. And again, we found that was restricted to the countries where there was a difficulty. And at the end of the day, Qatar has the muscle or financial muscle to be able to substitute that liquidity as we again saw during the blockade. But I think you -- so long term, I don't see this as a major issue for Qatar. The sustainability of it is, I think, very, very apparent as we've seen and demonstrated.

Our next question is from Chiro. Chiro, do you want to go ahead and ask your question? Chiro, we can't hear you, but I'll state your question. This is Chiro's question, I wanted to know about the dividend policy that may be followed and any update to the FOL.

Yes. Look, we've stated in the past that dividends are -- no, around 50% maximum of profit is where we expect. Ultimately, it is the decision of the Board, and that will be taken post finalization of the year-end results. But clearly, increased profit is there for you to see. In terms of FOL, we have submitted to the regulators, and we are awaiting their feedback. And once we receive that, we expect to call [indiscernible] and then completion. So once we have that from our regulator, then we can move forward. That's...

I think on the FOL, it's -- again, it's more a process. It's not a yes or no issue. It's more getting the process through the various departments. So we anticipate maybe in next year, Q1, I would say it's probably a realistic time frame for it to happen.

Our next question is from Edmond Christou.

Just a follow-up on the nonresident account, the deposit. Do you see an increase or pickup so far in the cost of this deposit? Or do you anticipate this into 2020? The second question is, is it correct to assume that the 21% of nonresident deposit is matched by dollar loans? What is the currency mismatch here? And the final one on the cost of risk, is it possible to provide cost of risk level for Q3, excluding recoveries? That would be very helpful.

Yes. Edmond, no, there hasn't been an increase in the cost of funding from our nonresident deposits. So no, we're not seeing that as yet. In terms of dollar lending, fairly well matched in terms of both the asset side and the liability side. Thirdly, I think it was about the cost of risk. I can just turn you back to Slide 7. So for the third quarter, you can see we show both the gross and net cost of risk. So you can see 69 -- just for the quarter itself, 69 basis points was the gross cost of risk and 55 is net of recoveries.

We have no further questions. Joseph, any closing remarks?

Well, thank you, everyone. I think those are very interesting and relevant questions. And I hope we were able to answer them suitably. But again, if you have any further questions or require further clarifications, Rehan and Zubair and our team are always available any time. So please do feel free to contact us. We look forward to talking to you again after the annual results, and thank you again for joining us today. Thank you.

Thank you, everyone.