Hello, everyone, and welcome to the Qatar Islamic Bank conference call. Please note that this call is being recorded. I'd now like to hand over to the moderator for today. Shahan, you may now begin. Thank you. Hello, everyone. I want to welcome you to QIB's Second Quarter 2024 Financial Results Conference Call. On this call from management, we have Gourang Hemani, the bank's CFO. As usual, we will conduct this call with first management reviewing the company's results, followed by a Q&A session. I will turn the call over now to Gourang. Please go ahead. Thank you, Shahan. Good day, ladies and gentlemen. Welcome to the Q2 2024 results call of Qatar Islamic Bank. We'll quickly take you through the main highlights of the first half results for 2024. The bank has reported a net profit attributable to shareholders of QAR 2.065 billion for the first half of 2024, representing a growth of 5.6% against first half of previous year. The net profit attributable to shareholders for the second quarter of 2024 was QAR 1.1 billion, representing 5.7% growth against corresponding quarter last year and 16.2% against first quarter of 2024. The total assets of the bank now stand at QAR 192 billion, up 0.2% or QAR 0.3 billion versus Q1 of 2024, and 1.7% or QAR 3.1 billion versus December 2023. The core activities of the bank, represented by financing and investing activities, continued to grow in the second quarter of 2024. Financing assets primarily driven by increase in private sector credit, now stand at QAR 127 billion, representing a growth of 1.8% or QAR 2.2 billion against Q1 of 2024, and 3.7% or QAR 4.5 billion above December 2023 levels. Investment securities have now reached QAR 41 billion, having grown 1.1% against Q1 2024 and 2.7% on a year-to-date basis versus December 2023. Customer deposits now stand at QAR 123 billion, up 1.6% against December 2023, as the bank continues to work towards optimizing its cost of funds by repaying expensive deposits. On the profitability front, the total income of the bank before cost of funding has reached QAR 5.7 billion for the first half of 2024, against QAR 5.03 billion for the corresponding period last year. At the same time, the cost of funds paid to deposits and sukuk holders of the bank reached QAR 2.65 billion, against QAR 2.12 billion in the first half of 2023. Net operating income of the bank after cost of funding for the first half of the year was QAR 3.2 billion, against QAR 3.1 billion in the same period last year, representing a growth of 4% compared to previous year. Expenses of the bank reached QAR 571 million, representing an increase of 3.9% against the previous year. Continued efficiency measures enabled the bank to maintain its cost-to-income ratio at 17.7% for the six months period of thirtieth June 2024. That is at the same level as previous year, remaining one of the lowest in the domestic banking sector. Continued strength in operating performance enabled the bank to continue to build precautionary expected credit losses on financing of around QAR 565 million in the first half of 2024, further improving the coverage ratios across all three stages of the financing portfolio. The impaired financing ratio or the Stage 3 financing was stable at 1.7%, with a healthy coverage ratio of 95%, up against 87.5% at the end of 2023. The results continue to demonstrate the bank's ability to generate strong, stable, and sustainable profitability for its shareholders, with a return on average equity of above 15.6% and a return on average assets above 2.2%. Our capital adequacy ratio under the new Basel guideline is healthy; it is at a healthy 20.7%, giving us sufficient cushion for future balance sheet growth. The board of directors of the bank declared the distribution of interim cash dividend to shareholders of QAR 0.25 per share. That is 25% of the nominal share value, payable to the eligible shareholders at the close of trading day of 24th of July, 2024. It's one day prior to the announcement that we had done earlier, which is 25th of July. This is to comply with the QFMA guidelines, and revised announcements shall be made to market shortly. Having taken you through the financial performance briefly, we can start with question and answer session. Shahan, back to you. Okay, great. We can start with the Q&A, please. the floor for question and answer session. If you'd like to ask a question, please press star, followed by number one on your telephone keypad. That's star, followed by number one on your telephone keypad. We will pause for five seconds to wait for the queue of questions. We have our first question from Salome Skhirtladze from Bloomberg Intelligence. Your line is now open. Hello. Thank you for this opportunity to ask the question. I have basically three questions. The first one is on the capital adequacy. How should we think on the excess capital buffer? Is it for funding some non-organic growth opportunities? Or what is your medium-term strategy on absorbing this excess capital? The second one is the rationale behind the interim dividend distribution. The third one, if you could comment on the major growth drivers in your loan portfolio, was it more from private sector and/or from retail, et cetera? Thank you so much. Thank you, Salome. So on the capital adequacy front, I think, we were waiting, as you well know, that the new Basel guidelines have been implemented by QCB from this year. So following the implementation, the capital adequacy ratios have improved. The medium-term strategy of the bank continues to remain to say we want to remain healthily capitalized, to be able to maintain and justify the strong credit rating that QIB carries. QIB is rated, one notch above majority of the local banks and one notch lower to QNB. I think a lot of it is driven by the strong capital position the bank carries. However, the bank believes that capital is one of the key pillar for future growth, whether it be organic or inorganic, and would like to continue to maintain healthy capital ratios as long as it is able to deliver strong return on equity. I think the interim dividend strategy is aligned to the capital position of the bank and aligned to our in line with the strategy to reward the long-term investors of the bank. So I think the bank has started cautiously this year, starting with 0.25%, 0.25 QAR per share or 25% of the nominal value. We'll continue to see how we can continue to work in trying to reward the long-term and strategic shareholders of the bank. In terms of the financing book growth, as you know, that we are predominantly a private sector bank. Majority of the growth has come for the bank from the private sector, coming, which includes both retail as well as corporate. So it's a balanced growth that the bank continues to witness overall on its portfolio. Across private sector predominantly, our government-related exposures is only 8% of the total loan book. So it's, if you see the growth comes predominantly from all the sectors that we deal with in private sector. Thank you very much. Next question comes from [Abhinav Kinash] from Lesha Bank. Your line is now open. Yeah, hi. Just on two things. So, what's your view—like, how should we think about the full year loan growth? And, what do you think will be the drivers from here? And, any comment on the NIM and the cost of risk guidance for the full year? Thank you. Thank you, so Abhinav. So as we have been saying, that we have been, we continue to maintain our projection that the loan book will grow in the range of 5%-6%. While so far the growth has been fairly stable and robust at 3.7% for the first half, we are starting to see slowly, though not to the extent that we would like, the impact of the North Field Expansion. We believe large part of it will come in, in the, in 2025. In terms of NIM, I think, we've seen a marginal compression of about few basis points this year, compared to the full year numbers of last year. However, in general, it will be dependent upon when the Fed cuts and how does the QCB impact, whether the rate cut is going to happen in September or December. That is going to be a key determination, determining factor, especially when it comes to the cost of funds, et cetera. At this point of time, we believe that the NIM should stabilize to the levels that we have seen so far, and we are not factoring any major change from now till the end of the year. In terms of cost of risk, I think we have been very clear to say that if the operating performance of the bank remains healthy, we'll continue to build precautionary provision. A large part of the provision build-up for this year was to again improve back our Stage 3 coverage ratio from to 95% range, 95% and above, which is the kind of the more comfortable range that the management and the board of the bank feels comfortable about. So that's what has driven. As we keep going, normally, as a tendency, as a bank, we try to front-load large part of our provisions in the first half of the year. So the second half of the year, the cost of risk should be lower than what you have seen in the first half of the year. But overall levels will be determined based on where does the operating profit of the bank finally end up at. Because as we have said, it's at this point of time, we don't see any major need to significantly increase or decrease the provisions, so it'll be more driven by how the operating performance of the bank goes forward from now till the end of the year. Okay, got it. Got it. Thank you. Our next question comes from Chiro Ghosh from SICO. Your line is now open. Hi, this is Chiro Ghosh from SICO Bahrain. Two very quick questions. A little continuation on the asset quality one. So your NPN ratios remain reasonably stable, your coverage is quite good, but your Stage 2 is still high. So is there a possibility we can see some moving to Stage 3 in the future? Some clarity on that would be very helpful. And second one is, has there been any update on the corporate taxes, if you can do that, of course? Sorry, can you repeat your second question, Chiro? I think- Yeah. Update on the- On the corporate tax. Okay, corporate tax, okay. Okay, going on the first question, I think, well, at this point of time, we don't see any names that we really know that have to be downgraded from Stage 2 to Stage 3. In general, as we have explained in the past, there is an overall tendency within the Qatari banking sector, whereby the Stage 2 ratios are usually higher. That's the precautionary measure that QCB also wants the bank to take, to make sure that you keep a close eye on assets that are not prime assets, if I can say, but are showing some signs of weaknesses, but that does not necessarily mean that they will move to Stage 3. I think you've seen that the ratios have fairly remained stable over the last couple of years, so we don't see any major risk from there. However, as a bank, we are fully prepared. I think the fact that we've been building precautionary provisions will allow us, even if there was some kind of unexpected changes in the or the transitions were to happen. In terms of the corporate tax, we've not received any major update in the second quarter. The last we had engaged in detail was in Q1. We expect something to come out in Q3, but nothing, we don't have any new updates to give you compared to the Q1 results call at this point of time, Chiro. Just one more question. I think I missed your point there. So this dividend one, the, which you gave on the first half, so how should we see a full year dividend? I mean, how should we see the dividend payout ratio? See, in general, our dividend payout ratios for the full year have been around 40% to 50%. That's the full year dividend payout ratio that we, we normally have. I see no reason for them to drop. On the contrary, there is a room to improvement, but that's purely going to be given the fact that our capital adequacy ratios are very strong. I think that's a prerogative of the board to decide as to how they want to do. In terms of the ability of the bank, we are definitely, we believe that we should be in the position to be able to maintain, similar payout ratio. That means, on an absolute basis, would be increase in dividend compared to last year. This is, this is more of a measure to align the, you know, it's not only an initiative by QIB, but you'll see other banks like, we have other local banks that have the ability to distribute dividend or have taken timely action to be able to have all the necessary requirements to be in place, have done announcement of dividend. This is also to align the Qatari stock markets and the Qatari banking system to be aligned with the way international markets work, whereby strong banks with strong profitability reward the shareholders on a more continuing basis rather than purely at the end of the year. Thank you. Okay. Thank you. That's all from my side. Our next question comes from Aybek Islamov from HSBC. Your line is now open. Yeah, thank you. Thank you for the conference call. I would like to concern a couple things. The first one is on Stage 3 coverage, which has increased quite well. My question is, once you reach 100% coverage of Stage 3 loans, should we expect more write-offs compared to the previous run rate in the write-offs? That's my first question. And secondly, with regard to your net interest margin, have you been using any hedges or applying any hedges in expectations to lower rates, in particular to your asset book, obviously? So, yeah, that's two. Thank you. I think on the first one, I think, I don't think so. It is the coverage ratio of the bank that really has been a concern. I think we've always been one of the banks that have more healthily provided, usually above 90%. It was only at the year-end that we had been below 87 point... We were below 90% and at 87.5%. So the write-off policy is more driven by the fact that have we exhausted our ability to pursue any legal course of action with the customers, and we need to obtain necessary approvals from central bank to be able to write it off. So, I, I... The coverage has not, is not one of the key constraint in general, because even when you look at 95%, this is the overall numbers, but there are very many customers who are already provided at 100%, giving you a composite average of 95%. So that's not a constraint. Write-off will be determined based on when the banks believes that it has exhausted the legal ability to, of recourse to the customer and have obtained necessary regulatory approvals. On the second question, on the NIMs, no, we have not built any hedges. I think there are some natural hedges that play into the Qatari banking sector. The deposits tend to be short term, between six months to one year, and majority of the financing is also linked to QCB lending rate, kind of technically making it a floating. So we kind of have a natural hedge in place. So if at all it has to be, they need to take a view on the interest rates and take positions, which could be more classified as trading positions, and we have not done that. So in short, no, we have not put any hedges or not taken any specific positions in view of where the, where and when the market rates are going to come down. Yeah. Just to clarify, is it correct that you wrote off about QAR 107 million of your loans in the second quarter? Yeah, we do a write-off as a regular basis, as I mentioned to you. We keep doing write-offs on a time-to-time basis. However, we continue to remain as a bank who tend to write it off only when they are fully convinced that it's the right time to write off. Okay. 'Cause when I look at your historical write-offs, the last big spike in write-offs was in 2021, and you written off about QAR 440 million of your loans, right? All Stage 3. So, I mean, hence the- With all due respect, I beg to your question, I think if you do the comparative on the peer basis, I think we'd still come out to be one of the banks with the lowest write-off ratios. Sure. That makes sense. Yes, I agree. Yeah. Thank you. Yep. Thank you. Yeah. Bansal from Sancta Capital, your line is now open. Good afternoon, gentlemen. Thank you for taking my question. My first question is on the asset quality. So I was going through your presentation, and I can see that 30% of your loan book is in real estate and contracting sector, and there is another 16% in services. So I believe hospitality sector is classified in services, and if that is correct, what is the exposure to hotels? Okay. So I... The first question was more of an observation, so what was the question that you want to ask on the real estate side? Yeah, I want to know, like, is hospitality covered in real estate or is it in services, and how much is your exposure to hotels? Uh- As a percentage. I do not have the number readily in front of me, but, in general, either it would more likely be in the depending upon the nature of the operations. If it is purely kind of service apartments kind of a thing, they would more fall into the real estate. However, if they are a full-fledged hotel. T hey would fall under the services sector. Yeah. In general, I think a large part of our services sector are more related to services which are associated with hydrocarbon facilities and other logistical facilities, et cetera. Hotel would be there, but they are not very significant compared to the overall services, number that we have. I don't have the number readily available. Yeah. You can reach out to me, and I can share with you, but in general, it's not a very significant portion. Within real estate, how much is your exposure to commercial real estate, like offices especially? A majority of our exposure is more related to either residential or retail. We have been shying away from the corporate offices since more than last 4, 5 years, so it's not very significant even when it comes to the real estate exposure. Just to give you, the real estate also includes any retail mortgages that are given to individuals- Right. is also included in that. Okay, okay. And, and I was, you know, comparing your asset exposure to other banks, other listed banks in Qatar, and, and one thing I noticed is that except for QNB, a lot of other banks also have, you know, 30% or 30%+ kind of exposure to real estate contracting and hospitality sector. But their NPL ratios are much higher, like 5%, 6%, 7% plus. So, why is it, why is the NPL ratio lower for your bank? Does it have to do with the kind of clients you have or the kind of real estate and contracting, segments that you are exposed to? Is there a difference of subsectors or some other reason? So I think it is not. The asset quality is not purely from real estate or contracting. I think one of the key differentiator, especially if you will look into other private sector banks, as you rightly mentioned, QNB, concentrations are very different, given the fact that it not only has a large government-related exposure, but it has got- Yes. ... it has got subsidiaries outside the country that also contribute to the significant, consolidated numbers. So I think you're right, right to keep them a little bit aside. But compared to other banks, especially focusing on the private sector side of it, you will see that one of the key differentiator is, is on the retail side of it. Our, our more than, more than 85% of our retail exposure is, is to Qataris, population out here, which tend to be much more, let's say, the credit quality remains much more stronger compared to some of the conventional banks, especially who focus more on expatriate sector. So that, that is one of the key differentiator. I think, moreover, I think we have, we have taken a lot of pride in terms of the kind of assets that we quality focus that we have always put in. So what you see, the low NPL ratios of the bank is not a recent phenomenon, but I think even if you pick it up in last 6, 7, 8 years, I think these are the more higher levels that... These are the levels that we have, we have been able to maintain around those levels. So I think it's, it's a combination of the customer focus that we have, as well as the kind of the risk management policies that we have adopted over the last one decade. Okay, understood. That's very helpful. I have another question on capital adequacy. So the minimum regulatory cap that you need to keep is 14.6%, and currently the bank is about 20%. So I want to understand, what is the long-term management target? Like, what level are you comfortable with? Do you want it to be below 20%, above? Like, what should be the sustainable rate? I think I partly answered that question to Salome when she first asked me. But overall, we'll say that we, as a bank, always believe that strong capital adequacy is critical. It helps to ensure that we have enough, let's say, capabilities to be able to grow both organically and inorganically. I also mentioned even to Chiro as well, that we are fairly comfortable with capital adequacy, and we'll definitely will be considered by the board and the management when it comes to the dividend policies of the bank. We do not have any set target in terms of what is the thing. However, the minimum levels that we would be comfortable, at this point of time, would be around 18.5%-19%. That is the minimum that we would go. We would still continue to maintain this high level till we get a full clarification from the central bank, because at this point of time, they have postponed the capital charge on the dollar position, but we don't know what is their plan in terms of whether they want to completely postpone it or they want to introduce it. So we would like to continue to maintain the buffer so that even if it comes, we continue to remain very healthily capitalized. But we are very cognizant that we want to maintain a good return on equity and we want to also reward our long-term and strategic shareholders. So various things will be taken into consideration as we keep going forward. Sure, sure. Just, one last simple question, I think you've touched upon this. So in a declining interest rate environment, like, if you make an assumption that for the next 2 years, Fed will cut rates slowly, with that assumption, do you benefit on the NIM side, like do your NIM also expand? ... because of, because you're an Islamic bank, or, does it not matter if the earnings fall for you guys? No, it is a drop, as we told in the past, in the previous earnings call as well, that QIB and in general, the Qatari banking sector has not significantly benefited from the rate hike cycle because of the fact that the cost of funds have really eaten up on the benefits that you get on the higher rates that you earn on the asset side. As we keep going on, as the rate cycle goes down, I think the positive to take from the Qatari banking sector and QIB would be that we don't believe that the NIMs are going to contract, unlike some of the regional as well as international banking systems, where they have got significant benefits. So in general, we expect when the rate cut cycle is going to happen, the asset yields will drop, but at the same point of time, we expect the cost of funds to go down as well. So overall, we expect the NIMs to remain stable unless and until there is a serious disruption in the asset and deposit pricing, which we don't anticipate at this point of time. Okay, very clear. Thanks a lot. Thank you for your time. No further questions for me. Our next question comes from Andy Brudenell from Ashmore Group. Your line is now open. Hi there. Thanks very much. A lot has been covered, but maybe I think at the beginning you mentioned something about loan growth. Could you just give a bit of color, please, on what are you seeing in terms of loan demand in the second quarter? And I guess currently, that maybe was different from the start of the year. You said something about the North Field expansion. Are you seeing trickle-down from that, or did you say not yet? I wasn't quite sure. But just give a bit of color on, you know, are we at the inflection point here, where we're actually beginning to see credit demand kind of pick up? And if so, in what areas, please? Thank you. What I was mentioning is that we have started to see, but not at the, the North Field Expansion trickle-down effect. We've started to see, but not to the extent that we would like, and we expect that larger part of it will start coming from late part of Q 2024 or maybe early to most likely early 2025. Our loan growth projections continue to stay between 5%-6%. We are predominantly a private sector bank, and the private sector credit is expected to grow around these levels in the country. What remains subdued, in general, is the public sector credit, which has hardly seen any growth or even if it has, whatever has been there in the system has been fairly temporary, has gone up, and again, they have repaid it. And I don't see any change in that bit of the government strategy, at least for the next 6-12 months. So from our perspective, we believe that this year and next year, the loan growth should be around 5%-6% in the private sector space. Okay. And then, so I just sort of within that, you know, are you seeing any improvement in- It will be- In real- Predominantly in the same sectors that we deal in, it will be, it will be personal banking. Real estate and all has been a bit more slower because I think there's, the, the projects are not. I think the large part of the spend on the real estate side has already been made, so we don't expect system-wide any increase. You can have individual banks growing or coming down, depending upon how, how the customers move their relationships from one bank to another, but on a systemic basis, we don't expect significant increase on the real estate side of it. What we will see is more on the industry and services side, that will continue to grow as a part of the various initiatives which the government is going to take on the North Field Expansion. They recently announced a mega $5 billion project on the entertainment setup. They want to do something Disney, Disney-sized resort that they plan in Qatar, and I think the government expects $5 billion spending of it. So you will have more, let's say, specific project-driven financing opportunities that will come on the real estate, and I would say the entertainment service side of it, but majority of it or entertainment hospitality. However, the majority we expect on the services and the industry side to come in going forward on the corporate side of the biz book. Yeah. Okay, thanks. And then so just on the dividend, I guess maybe it's a, an observation, or a suggestion. I guess it would be, as soon as you bring in like an interim dividend, you know, on the QNB call, they brought theirs in, and it was roughly about half of what everyone thought the year was gonna be. And so there were some questions about, you know, is it half or is it more? But at least it looked like it was sort of half, and I guess the market's okay with that. If you then bring in an interim and it's much lower than half... it, you know, it raises some questions, albeit completely erroneous, but it does create some doubts. I wonder if there could be a little bit more communication from the board about what it's thinking and why that was the, why that was the number, et cetera. Do you understand what I'm saying? I don't think so, that any bank would have come out with a justification to say where their interim dividend numbers should be viewed in line with the overall annual dividend. You have to understand that this is the first time that some banks have taken this exercise, and it's a process of how you keep moving forward. In general, I think I've already answered the question to say that we distribute our annual dividend payout on the payout ratio perspective is about between 40%-50%. Our capital adequacy is strong, so I'm sure the board and the management is thinking, and the board will think to say that how we can continue to improve the dividend payout compared to previous years. But I think interim dividend is just more, at this point of time, it's more about the timing of distribution and does not give any direction or indication in terms of the quantum of dividend that will be distributed for the full year. Because the board always has the interim dividend can be announced at any point of time, not necessarily two times a year. It could be done more or less, depending upon how the board feels more comfortable with. Sure. I understand. I'm just saying that that's perception, and so communication is key. Okay, thank you very much. Our next question comes from Aybek Islamov from HSBC. Your line is now open. Aybek Islamov? Yes, apologies, I was on mute. Mr. Gourang, one follow-up question. On your CET1 ratio, which is looking quite good, actually improved in Q2 versus Q1. The question is, was there any impact that we don't see from these Basel III reforms, which relates to exposure to real estate, you know, past due loans and so on and so forth? No, no, no. Yeah. Let me clarify. Let me clarify. As we have mentioned in the past, that effective under the new Basel guidelines implemented by QCB, from this year onwards, the interim profits are included as a part of the capital, unlike what it used to be in the previous Basel guidelines. So what you see is also an effect of the interim profits, minus the interim dividend, is included as a part of the CET1 calculation at the end of thirtieth June for the CET1 ratio calculation. Hope that clarifies, Aybek? Yes, that does. And the whole discussion of Basel III reform that Central Bank introduced from the first of January around the risk weight for commercial real estate exposures, did that have any impact on your risk-weighted assets, on your CET1 ratio? It had an impact on all capital adequacy ratios, so there were the new Basel guidelines, as we had mentioned. We were expecting benefits because of the LTV-based concept that have been applied for the risk weights. So that helped. So the credit, if you look, if you compare the risk-weighted assets of the bank for June or even Q1 versus December, you will see that there have been more benefits on the credit risk side, while and where the risk weight benefits have come in. However, the market risk charges have been increased, and that's why you will see the market risk weight market risk risk-weighted assets have gone up. Okay, thank you. As of right now, we don't have any raised hands. I'd now like to hand back over to the management for the final remarks. Thank you very much, everybody. Thank you, Shahan. It was a good discussion that we had, which we look to take it forward and carry it forward in the third quarter results and annual results as we keep going forward. Thank you very much. Thank you for attending everyone in today's call. We hope you have a good day. You may now disconnect.