Good day, and welcome to the Qatar Islamic Bank Q1 2022 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to the Chief Financial Officer, Gourang Harmani. Please go ahead, sir. Thank you, Emma. Good day, everybody. Welcome to the Q1 2022 Results Ca ll for Qatar Islamic Bank. In terms of the overall economic front, I think Qatar is at around the same place as what the world is witnessing. We are slowly seeing the markets and everything going back to a sense of normalcy. Qatar is more seeing quite some activities in preparation for the 2022 World Cup. Things seem pretty good in terms of the overall macroeconomic front, so I will not speak much on it today. We'll quickly go to the Q1 results of QIB. As you're aware, we just announced our results a couple of days back. For the first quarter of 2022, our net profit attributable to the shareholders was QAR 855 million, up 14% versus Q1 of 2021. In terms of the balance sheet, the total assets of the bank now stand at about QAR 193 billion, representing an increase of 6.8% versus Q1 of 2021, but have dropped marginally compared to December of 2021. The drop versus December is primarily driven by the reduction in the placements with other banks. Financing assets of the bank are now at QAR 127 billion, having grown 1.6% compared to March 2021, but down 1% compared to December 2021, primarily from repayment from government sector that has witnessed a sector-wide drop on account of improved cash flows and revenues for the state of Qatar. Investment securities at about 45 billion, up 34% compared to March 2021, and 1% above December 2021. Customer deposits are now at QAR 123 billion as the bank continues to rationalize its funding mix in line with the new guidelines from QCB related to financing to deposit ratios. On the profitability front, the income from financing and investing activities reached QAR 1,857 million, registering a 5.6% growth compared to Q1 of 2021 and 3.6% versus fourth quarter of 2021. At the same point of time, the cost of funding paid to the Sukuk holders and the depositors and the Unrestricted Investment Account holders was QAR 513 million, down 1.4% versus first quarter of last year and 8.2% versus the fourth quarter of last year. As such, the bank was able to improve its income from funded activities by 8.3% versus Q1 of last year and 8.6% versus Q4 of last year. Net fee and commission for the quarter was QAR 197 million, up 18% versus Q4 of last year, but dropped versus Q1 of last year that had really benefited from strong investment banking advisory revenues last year. In summary, the net operating income of the bank after funding costs have reached QAR 1,603 million, up 11% versus last quarter and 1.5% versus Q1 2021. The total operating expenses for the first quarter 2022 was at QAR 270 million, maintained around the same levels of first quarter last year. Strong income generation and cost containment enabled the bank to further improve its efficiencies, bringing down the cost to income ratio to 16.8%, which is the lowest in the Qatari banking sector. On the asset quality side, the bank was able to maintain the ratio of non-performing financing asset to total financing assets at 1.5%, similar to the levels at March 2021. The bank continued to work towards improving the coverage ratios on the non-performing financing assets, which now stand at 95% compared to 92.3% at Q1 last year. QIB continues to pursue conservative impairment policy, building up precautionary impairment charge on financing assets by having set aside QAR 519 million for the first quarter of 2022, majority of which was allocated towards stage one performing financing book. On the capital adequacy side, the total shareholders equity of the bank has now reached QAR 20.3 billion, and the capital adequacy ratio under the Basel III guidelines is at 18.8%, which is well above the minimum regulatory requirement prescribed by Qatar Central Bank and Basel Committee. I think I've provided the brief synopsis on our Q1 results. Emma, we are ready to take the questions, so over to you. Certainly. Thank you. Ladies and gentlemen, to ask a question today, please signal by pressing star one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, to ask a question today, please signal by pressing star one. We will pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Amit Mamtani from Goldman Sachs. Please go ahead. Hi. Good afternoon. Thank you for organizing this call and for the helpful introduction. Your first quarter cost of risk increased 100 bps during Q, and you explained that was driven mainly by stage one. We understand the prudence, but can you please share some details about which sectors and exposures are seeing stress? Secondly, can you also please provide a clarification on stage three coverage ratio? In your presentation, I see in a table that December 2021 stage three coverage was 76%. In another chart, I see 92%, and it also differs for December 2020. Can you please provide a clarification on that? Thank you. Fair enough. On the first question. As I mentioned, these are all the impairment provisions that have been created are primarily for stage one, precautionary. They're not there. We have tried to allocate predominantly to the areas that are impacted by COVID, and also we have tried to build an overall, let's say, higher than what our models would suggest, et cetera, in line with the fact that we have predominantly been, let's say, low default portfolio that we have, so we continue to build precautionary measures. These are not required in terms of the ECL modeling, but they have been taken in to make sure that the bank is able to build enough cushions. In reality, we are reaching a point whereby it is going to become increasingly difficult to justify higher stage one ECL. As such, we have been building provisions because we have been having strong operating performances, and we want to continue to do that. I think the next way forward would be we'll have to look into it to say how we are able to allocate them to stage two, stage three. If that means that we are voluntarily required to downgrade some names, we would do that. In general, it is not a need-based cost of risk that has been taken, but it is purely driven by the fact that we had a very strong operating performance. In terms of the mismatch on the NPL coverage ratio, I think it could be predominantly driven by the fact that the numbers which I mentioned to you now are the more correct numbers. The 95% coverage ratio is what it is at the end of Q1 this year. The coverage ratio last year, Q1 was 92.3%. The coverage ratio had dropped to roughly around 70% in December of 2021. That was because of a downgrade that we were obliged to do after announcing our results at the request of the central bank. However, we were carrying enough provisions, for that account, et cetera, but we still decided to supplement it in Q1 of this year in order to do a better allocation of the charge that we have created. That's what explains the difference in the NPL ratio and the coverage ratio. When we had done the Q1 call last year, the coverage ratios that we had told were higher, but then when the results were approved by central bank, there were some changes that were required to be done. Thank you. That's very helpful. Thank you. Thank you. We'll now go to our next question from Leah El-Hag from Bloomberg Intelligence Research. Please go ahead. Yes. Hello, everyone. Thank you for taking my question. I actually have two questions. First, since we have lower industry growth, in terms of loans for the first quarter, are you expecting to revise your loan growth target for 2022? And how much you expect the growth to come from the private sector? Would that be due to an increase in the business activity prior to the World Cup? My second question is, since the market is expecting six-seven rate hikes this year, how much do you expect margin to expand following these rate hikes? Thank you so much. Okay. Thank you for the question. The first question, I think we have always been clear, right? We never give a guidance on the overall credit growth. We have always said that the private sector growth will be in the range of 6%-8%. The public sector growth is very much driven by the ALM of the government, right? They tend to, depending upon the cash flows that they have, the revenues that they generate, they infuse the liquidity into the system, or from time to time they resort to improving the credit offtake from the market. As you have seen, the strong hydrocarbon prices that we have seen in Q1 has prompted the government to really reduce their overdraft and other borrowing facilities that they have from the system in general, not only QIB. As I explained in my brief synopsis of the results, to say the drop that you have seen in our financing book compared to December is completely driven by the repayment in the public sector credit that we have. The private sector credit did show a relatively modest growth in Q1 of this year as well. The private sector continues to Our target remains between 6%-8% for the industry, and we believe that we will at least try to maintain our market share, if not improve it, depending upon the risk-return profile on the various opportunities that are available. In terms of the football, FIFA-related offtake, I think all the activity has been done in reality, in the sense is we're seeing the finishing touches going on. There's no banking sector impact significantly going to happen except for some minor working capital drawdowns that could be done, but that's not going to be the major driver for this year. Your second question, can you please repeat? I just seem to have not. Yes, sure. Okay. I'm saying that the market is expecting actually six-seven rate hikes this year. How much do you expect the margin to expand because of these rate hikes? The challenge is very difficult to predict where the net interest margin for us would go. Specifically would be depends on how does QCB follow the Fed rate hikes, right? Every time there is a rate hike announced by Fed, QCB does follow the rate hike, but it manages the different interest rate benchmarks that it does. Like the first Fed hike that happened, QCB did not increase the QCB lending rate. Majority of the books within Qatar, especially on the private sector side and even in some other cases in the Qatari riyal book, did not benefit from that rate hike. The question will remain to get. For me to be able to provide you clarity would be very much dependent on how much rate hikes does QCB follow compared to what Fed hikes are going to be made. If I say that if every Fed hike is met by corresponding hikes in the QCB lending rate, then I think our NIMS would definitely improve by at least 50 basis points, if not more. The question remains is that Will QCB follow each and every Fed hike? What would be the timing of which hikes they follow and which hikes they do not follow, right? On the QCB lending side. Because the If they increase every rate hike, then our asset book reprices as well as our funding costs will also be moving in tandem to a large extent. In that case, our NIMS would definitely improve by at least 50 basis points given the margins that we carry and the low cost of funding deposits that we have. However, if the Fed hikes are not met, then maybe you could see the cost of fund may go up while my asset may not reprice. It's very difficult to predict, but if I say that if all the hikes are met, then we are expecting at least 50 basis points improvement. That too will happen somewhere in Q4 of this year and not before that because there is an asset repricing cycle. Normally it takes three to six months for the assets to reprice from each rollover. That's the long and short of the- Perfect. Very clear. question you had asked. Very clear. Thank you so much. Thank you. As a reminder, ladies and gentlemen, to ask a question, please signal by pressing star one on your telephone keypad. We'll now go to our next question from Aybek Islamov from HSBC. Please go ahead. Yeah. Thank you for the conference call, Mr. Gourang. Yeah, a couple questions from me. Firstly, can you explain to us what's happening with the originations in the public sector and the private sector? I understand there are a lot of repayments, but are there any originations and how big they are relative to the loan book that you have? That's the first question. Secondly, you mentioned that you are taking a lot of provisions at the moment, you know, which is great. But can you give some color on your provision coverage relative to the ECL requirements under IFRS 9? How over provisioned are you? That would be useful to know. I think thirdly, can you remind me please with the retail loans, how are they priced? I understand there is a cap on retail lending yields in Qatar, I think it's 6% at the moment. If the lending rate increases, does it mean that the retail loan yields will also increase as a result? Thank you. Answering your question, I think the first question you asked on the origination and in the public sector, private sector, I already told you that we expect the new loan growth in the sector, in the private sector to be 6%-8%. Public sector would be difficult to comment. We'll have to keep watching out as to how the government manages the liquidity for the year, especially now that, you know, there'll be a lot more government spending, at least on the operating side happening once we go down the year near the FIFA. But very difficult to predict on the public sector origination or point of view. In terms of the second question, in terms of how much of excess I have, I think technically I have no excess because eventually I have to prove everything to auditors that it is aligned to certain assumptions and baselines. There's no specific quantum I can give you. I think, as an analyst, I would like you to compare what is our levels vis-à-vis what the market is doing. At the end of the day, we operate in the same market, and the portfolios are not materially different. I think I would leave for you to make an assessment. It's very difficult for me to comment and say that this is the excess, because as of now, we are trying to find the ways to justify whatever we have. As I said, we have. If there are potential downgrades to stage two and stage three, we still have the room to be able to allocate because that's some of the assumptions that we build in when we try to build higher provision. The different banks take different approach. Some banks have been taking excess provisions in stage three books. We've tried to work on building excess provisions on stage one portfolio. That's what I can answer. Your third question, Aybek, was on, what was it again? Retail lending. Yeah. Yes. loan pricing. Mm-hmm. I understand. To speak straight, yeah. So the- What happens when we? Yeah. Yeah. The retail loan price depends upon the product. There are some products, as soon as the QCB lending rate increases, those products could get repriced, especially on the, let's say, Ijara lending, on the high net worth lending, et cetera. Some of the, let's say, on the consumer lending side of it, they, as an Islamic bank, we fix the profit rates at the time of origination. In those cases they would not get repriced, but only the new book will get repriced at higher rates. That's only for the consumer lending book of it, not the entire personal lending. Mm-hmm. Only the consumer lending. Okay. Understood. Yeah. Thank you. Yeah. Just to clarify, you said that, 6%-8% loan growth, but that's new loan growth, right? New originations. If the sector grows. Uh. Of course, when you grow 6%-8% in the sector, it has to be new origination, right? The moving from one bank to another bank is not going to lead to a sector growth, right? Yeah. Yeah, yeah. Now repayments, you're saying that it's difficult to forecast, difficult to expect what they're gonna be, but they can easily offset the new origination. Yeah. I said difficult to forecast the public sector bit of it. Private sector growth of 6%-8% would be origination net of repayment. That's the expectation that we have for the sector this year. Mm-hmm. Understood. Very helpful. Thank you, Mr. Gourang. Thank you. Thank you. Our next question comes from Zohaib Pervez from Al Rayan Investment. Please go ahead. Mr. Gourang, this is Shabbir Kagalwala from Al Rayan Investment. Thank you for your presentation. I had a couple of questions, if I may. If we remember before that, when COVID strike, when the interest rate fell, you had floors in your corporate book which got triggered and the rates did not fall further. When the rate increases, how many rate hike has to happen before you cross the floors? You know, again, there is no one specific loan or anything. I was just giving you an assumption. I've already given my assessment to say that if all the hikes happen, then we expect the margins to improve by 50 basis points. That's the rough assessment that we have at this point of time, right? Because as I said, it all depends upon the timing of increase and how much of it is followed by the QCB in the QCB lending rates. Right. My second question is on the cost side. You have done an excellent job of maintaining the cost. What are the plans? Is the QAR 270 million number or around QAR 270 million number the base case, or it can go down further? If you ask me as a CFO, I would always like them to go down further, right? But at some point of time there has to be a reality. I think if you look at it, we have been trying to well manage our costs. I think we do not shy away from spending. We continue to spend on the initiatives that we have really identified, which is predominantly technology, digital, and those spends continue to remain. However, as we said, there is a conscious, let's say, planning in the bank such that if there are investments that are made in technology, et cetera, we want to see corresponding efficiencies coming in and other operating costs to drop accordingly. We may expect a bit of seasonality in the expenses a little bit. As I had mentioned, even in the last quarter, as we go near the end of the year. You'll see some more operational spend happening not only for QIB but for all the organizations too in Qatar as they try to show their support to the grand event which the country is having. You could see some small increase in expenses, but some of them could be event driven, et cetera. Otherwise, you should expect our depreciation to go up as we continue to invest in technology, et cetera. However, we try to improve on savings on other costs, including, personnel costs and other administrative and overhead costs, et cetera. We continue to work towards it. I think we have achieved levels which are, I would say, more than healthy. That's all I can say. We would be more than happy to maintain them. If there is a reduction that comes in, that's, as they say, more the merrier. More reduction come, merrier it is. I think we have reached a level whereby I think it's very difficult to go down beyond a certain point of time. All right. Thank you. Thanks for the comments. Much appreciated and all the best. Thank you. Thank you. Our next question now comes from Adnan Farooq from Jadwa Investment. Please go ahead. Thank you for the call. I really appreciate it. I have a couple of questions. The first one, just a clarification on the guidance you provided on NIMS if QCB follows all Fed hikes. This 50 basis points will be reflected over what time period? As I mentioned, it all depends upon the timing of the increase, right? If the increase by Fed are more front loaded and QCB follows accordingly, then you could see more benefits coming from Q3 onwards and more in Q4. If they are more evenly spread, then I think you will see in Q4 and in 2023 and not much in 2022. Understood. I had another question, and apologies for my lack of knowledge. You mentioned that your deposit mix, you're trying to optimize it based on QCB guidelines regarding loan to deposit ratio. Can you educate me about what these guidelines are? Yeah. Earlier, QCB used to recommend that the banks maintain clean loan to deposit ratio at 100%, and that's what we used to try to maintain at about 100%, 102%, despite the industry average being around 120%, 125% or around that. They issued recent guidelines whereby they included the longer term bank borrowings and capital markets issuances as a part of recognition in their loan to deposit ratio. That effectively meant that to comply with the regulatory guidelines, we could let go of certain expensive deposits because we would still be compliant with them, given the fact that whatever funding that we have from Sukuk as well as from the other longer term bilateral. They've come out with a matrix in terms of the eligibility depending upon the maturity profile of the bilateral borrowings and Sukuks. Does it clarify? Aligning more towards what LCRs and the NSFRs would be doing, right? Where they take into consideration the total long-term funding rather than purely focusing on customer deposits. Yeah. Thank you so much. That's really it. Thank you. We have a question now from Janany Vamadeva from Arqaam Capital. Please go ahead. Thank you again for the call. I just have a quick question on the NIMS. Following on the color you gave on how QCB increases like side of the rate and not the lending rate. I'm just wondering how much of your loan book is priced on the QCB lending rate and how much of your book would like move in tandem with like either USD loans or both sides will move when even if `QCB does not raise the lending rate? Roughly about 30%-35% of our balance sheet would be, I would say, dollar linked, if I can say, if I take both my investments as well as my loan book, et cetera. About 25%-30% is more international benchmark driven, while almost all of retail book and large part of the corporate Qatari riyal book is also is predominantly dependent on QCB lending rate. As I said, some of them have a floor, some of them are fixed rate, pure fixed rate, but pure fixed rate is very minimal. They are predominantly everything is more linked to QCB lending rate. It's 30%-35% of your loan and 25%-30% of your total assets is like USD driven? Yes. They are driven by LIBOR or similar international benchmarks, but predominantly LIBOR. Given that the rate hike happened like in, like in March, do you expect any pressure on your margins in the coming quarter? Like how do you see that for Q2? So far it is a bit too early, just about 20 days we've gone into the quarter, it's a bit too early to say. As you've seen in the Q1, we've still been able to maintain our financing margins at about 3.4%. I don't see at least in this quarter to see some immediate impact because even though not every funding book, the funding also doesn't reprice immediately, right? They all have lag effect, in many cases all the way up to six months to one year. Yes, I still. I don't expect any major impact on Q2, but as we keep going to Q3, Q4, that will be more dependent upon the speed of Fed hikes and speed and quantum and how does QCB follow it. Thanks, Gaurang. I just have one more quick question. Has the deferred loan program ended in Qatar, end of Q1 2022? Yes. The Q1, the deferred loan program has technically ended. However, QCB have come out with the guidelines in terms of identification of the impacted loans, what are the measures which the banks are going to take, and they have to put up a plan in place and work with the regulator to be able to decide how they will be treated. It's a while the deferment has kind of stopped in Q1. However, we expect to have more clarity by June, July, whereby we would have more analyzed and assessed the portfolio and adopted with the guidelines that QCB is providing in terms of how to ensure that we continue to support the impacted sector and how does it imply in depending upon the asset quality impact, whether it is a temporary, medium term, permanent, et cetera. If it's a permanent, then by default we'll have to take it to stage three, which we have continued to do it, so it's nothing to do. But in terms of the assessment, we'll have to. QCB have just come out with the guidelines. We are still assessing how does it what does it mean and how does it reflect to our books. Will you be able to share what percentage of your book was under the deferred program at the end of Q1, if that's possible? Well, in terms of the assets that it's only about QAR 3 billion of the financing book. However, the guidelines for QCB are much more wider and they want us to look not only at the deferred portfolio, but they want us to look at all the credit under the impacted sectors, et cetera. As I said, we are driven by how QCB wants the overall impact to be adjusted and absorbed by the sector as a whole. It's not something which QIB alone can drive or give you a guidance on at this point of time. That's very helpful. Thanks, Gourang. Thank you. Thank you. We have a question now from Edmund Christo from Bloomberg. Please go ahead. Hello. Hi. Thanks for the call. Just follow up on the LDR calculation. First, is the threshold still 100% under the new statutory LDR for the regulator? Second, if I assume that this is including debt and tier one, then just for reconciliation purpose, is your Q1 LDR under the new methodology around the 89%? It gets more complicated like the Saudi where there is a maturity weighting into it. If you just provide any clarity on this, much appreciated. Thank you. Edmund, I don't have the full calculation in front of me and in all honesty for all the other investors as well, please reach out to us if you want to have any one-on-one if you want to have any clarification on how the calculations are done, et cetera. As I mentioned, only the debt issuances as well as the bank lending are allowed as a funding in the LDR calculation, but they are all driven by a certain haircut that is based on the maturity profile. I think that's the high-level I can give you an answer. If you want to go into specific calculations, please do reach out to us and we'll be happy to assist you in reconciling whatever you would like to reconcile. Okay, perfect. Just follow up. Tier 1 is included as well? Tier 1 debt, Sukuk? No, I just mentioned only debt type Sukuk. Tier one is a capital. Capital cannot be a part of funding, right? Either an instrument is a capital or is a funding, right? What I mean to say, a debt type funding, right? So. Okay, perfect. Thank you. It's pure debt. Okay, wonderful. Okay. Okay, thank you very much. Cheers. Thank you. As we have no further questions at this time, I'd like to turn the conference back over to your speakers today for any additional or closing remarks. Thank you, Emma. We'll conclude the call if there are no more questions. Okay, great. Thank you, Gourang, for giving us an update, and we'll pick this up again, next quarter. Thank you very much. See you, everybody, next quarter. Thank you. Bye-bye. This will conclude today's conference call. Thank you for your participation. You may now disconnect.