Good day. Welcome to the Qatar National Bank first quarter 2021 results conference call. This call is for investors and analysts only, and media should please disconnect now. This conference is being recorded. At this time, I would like to turn the conference over to Rahul Bajaj. Please go ahead. Thank you. Good morning, good afternoon, good evening everyone on the call. This is Rahul Bajaj from Citi Research. We welcome you all to Qatar National Bank's first quarter 2021 results conference call, being jointly hosted by Citigroup and QNB Financial Services. On the call, we have the QNB management team with us to give us a view on first quarter performance and take investor and analyst questions. On the call, we have Mr. Ramzi Mari, Group Chief Financial Officer. We also have Miss Noor Mohammed Al-Naimi, General Manager of Treasury, and Mr. Mark Abrahams, Assistant General Manager of Trading and Treasury. At this moment, I will hand over the call to Mark to take it forward. Over to you, Mark. Great. Thank you very much indeed, Rahul, for hosting the call and welcome everyone. Before we begin, I would just like to highlight and repeat the fact this call is only for investors and analysts, and any media should disconnect now, please. I will begin by giving an update on Qatar in light of COVID-19, followed by a brief overview of macroeconomic environment in Qatar. I will cover QNB's financial results for the quarter ended 31st of March 2021, finally open up the floor to Q&A. Qatar has taken all necessary precautionary measures to protect the society, its population and economy from COVID-19. Whilst the impact of the COVID-19 pandemic provides uncertainty, Qatar's economy has weathered the storm and activity is rebounding as business resumes. Moreover, Qatar's COVID vaccination program is progressing fast as more than 30% of the population has now had at least one dose of the vaccine. Qatar's non-energy private sector economy continued to expand strongly over the second half of 2020 and the first quarter of 2021 as coronavirus-related restrictions were lifted, according to the Qatar Financial Centre's Purchasing Managers Index. The top-line PMI has been comfortably above the expansionary threshold for nine months and has been accelerating in recent months, clearly signaling sustained improvement in business conditions in the non-energy private sector segment of the economy. Moving forward, private sector growth will be boosted by the continued structural reforms, including ownership liberalization, the promotion of foreign direct investments, labor reforms, and several initiatives to support SMEs, as well as self-sufficiency in strategic sectors. Tailwinds for investment in increasing hydrocarbon production will drive economic growth going forwards. Six new LNG liquefaction trains are planned to increase Qatar's LNG production by 64% to 126 million tons per annum. Qatar is going to go from 77 million tons per year to 110 million tons by 2025, and then up to 126 million tons by 2027. Positive spillovers from our increased hydrocarbon production will combine with diversification efforts and structural reforms to boost activity and spending in the manufacturing and services sectors. I will now move on to QNB's quarterly financial results for the three-month period ended 31st of March 2021. Key financial results are as follows. Net profit was 3.3 billion QAR or $0.91 billion. Considering the global economic conditions, QNB Group, following its conservative approach towards building adequate reserves against potential loan losses, has opted to increase its loans loss provisions compared to last year, which will assist in protecting the group from any adverse experiences in the portfolio. This has impacted the reported profitability. In addition, QNB Group has continued on its operational rationalization exercise, which has resulted in significantly reducing the cost to income ratio from 25.6% last year to currently 23.4%. Operating income maintains at 6.7 billion QAR or $1.8 billion, clearly demonstrating QNB Group's success in maintaining growth across the range of revenue sources, even in these challenging conditions. Total assets remain over QAR 1 trillion at 1.042 trillion QAR, or $286.4 billion, up by 8% from March 2020. This was driven by growth of 2% in loans and advances to reach 720.6 billion QAR or $198 billion. QNB Group remains successful in attracting deposits, which resulted in an increase in customer funding by 6% from March 2020 to reach 749.6 billion QAR or $205.9 billion. This has also improved the group's loan-to-deposit ratio to 96%. The group was also able to attract high-quality wholesale funding. The group issued a $1 billion five-year bond in January. This deal attracted strong interest from around the world from key global investors, reflecting our investors' confidence in QNB Group's financial strength and its position as the largest financial institution in the Middle East and Africa region, and also clearly demonstrates our standing as a high-quality regular issuer and confirmation of our successful strategy of becoming a leading bank in MEA. Despite several challenges and headwinds from the global pandemic, QNB Group was able to maintain the ratio of non-performing loans to gross loans at 2.2%, a level considered to be one of the lowest among financial institutions in the Middle East and Africa region, reflecting the high quality of the group's loan book and the effective management of credit risk in these conditions. In addition, the coverage ratio on Stage 3 loans is standing at 110%. Total equity increased to 93.5 billion QAR, up by 5% from March 2020. The bank's capital adequacy ratio is standing at 19%, comfortably higher than both QCB and Basel III requirements. The group is very well capitalized and comfortably exceeds other regulated liquidity and leverage ratios. With that, I will now close, and we will turn to questions and answers. Thank you. Thank you. If you would like to ask a question, please press star one on your telephone keypad. Please ensure the mute function on your phone is switched off to allow your signal to reach our equipment. If you find your question has been answered, you may remove yourself from the queue by pressing star two. Please restrict yourself to two questions. Again, please press star one. We will now take the first question from Waleed Mohsin from Goldman Sachs. Thank you very much for the presentation, and Ramadan Kareem. A couple of questions from my side. First, if you could comment on the funding situation in Turkey, particularly the access to the swap market and the impact it's having on margins, growth, and asset quality. Secondly, if you could talk about the trends that you're seeing on asset and credit quality, particularly in Egypt and Turkey, especially in the Stage 2 bucket. Thank you much. Mark, if you can comment on the liquidity situation in Turkey. Certainly. Obviously, with the surprise announcement recently of the change in the governor, there was quite a significant spike up in the offshore FX forward rates, and also the CDS levels as well in Turkey. From a QNB Finansbank perspective, we've always been very prudent and run very conservative liquidity measures anyway. From the bank's perspective, there was never at any point any requirement for a single dollar or Turkish lira of funding from the group here in Doha. Since that time, we've been in daily contact with our colleagues in Turkey. As I'm sure you've seen, there's been a significant reduction in the volatility of the offshore market as I think there's a sense of stability has returned to this market. There was no undue panic at that time. There was a natural spike up, I think, on that unexpected news. In terms of the funding of QNB Finansbank specifically, and I think the broader economy, things have definitely stabilized and calmed down, and that's reflected very much in the London FX swap market and the current reduction back down in the CDS market. On asset quality in Turkey and Egypt. We start with Egypt, Stage 2 loans in Egypt moved from around 8% to 9.5% because we've seen some accounts that need to be shifted from Stage 1 to Stage 2. In terms of NPL ratio in Egypt, are still stable, around the 2.4%-2.5%. We don't see, until today in Egypt, major pressure in terms of NPL. However, we wanted to increase their Stage 2, and I think, reaching 10% at this stage and the way the economy is going is a good idea from a conservative point of view. If we look at the overall numbers in Egypt, their coverage ratio maintained around 111%. Stage 2 coverage increased to 14.2% from 13.7%. The cost of risk is still stable around 110%. The number doesn't show any momentum of weakness in the book, we still believe that we need to be conservative in Egypt, and that was reflected in the Stage 2 loans. We shift to QNB Finansbank, their Stage 2 loans did not materially increase. It's still stable around the 9%. Their coverage ratio, again, stable, close to 100%. NPL ratio marginally grew from 4.5%-4.6%, nothing material. Their Stage 2 coverage also increased to 11.7% from 11.3%. The cost of risk, in reality, dropped to 145% from 175%. Whether it was in Turkey and Egypt, we can summarize by saying we still enjoy a very strong coverage ratio. We are not seeing strong momentum of weakness in the book. However, QNB is taking a very conservative approach in building their provisions. We want to maintain a strong coverage ratio, and we want to continue to grow coverage in Stage 2 and Stage 3. Got it. Thank you much. Just a last follow-up. Any of these events, how is this changing your growth strategy in Turkey and Egypt? What I mean by that is obviously the unexpected turn of events in Turkey, which has pushed up the cost of funding, normalizes a little bit with the normalization in the swap market, but still pushing it up. Number two, rates remaining relatively elevated in Egypt, which has meant that capital expenditure seems to have been pushed out by six months or so. Has it changed your kind of growth outlook for Turkey and Egypt, these two factors? Growth in Egypt this year in terms of balance sheet, we don't see it as strong as what we have seen in previous years. That's why we are still anticipating for 2021, asset growth to be 10%-12% only. Loans not to grow by more than 7%-8%. Deposits will continue to be between 10%-12%. For Turkey, in terms of balance sheet, we agree that there is vagueness in how interest rates are going to go forward. We fully appreciate the impact of the changes that took place. Still, we believe that Turkey will continue to grow in terms of balance sheet, between the 15%-17%, which is higher than what we anticipate in Egypt this year. Overall, growth in both countries will be lower than what we have seen in previous years. We are taking a very careful approach in growing the business, whether it was in Egypt or in Turkey this year, until we see the overall economical implication. Got it. Thank you so much, Ramzi. That's very helpful. Thank you much. We will now take the next question from Chiradeep Ghosh from SICO. Hello, thanks for hosting the call. This is Chiradeep Ghosh from SICO Bharat. I have two questions. The first one is related to this gas expansion and the hydrocarbon production that has been planned in Qatar. Can you please tell me, in which year do you excuse me, in which year do you expect the borrowing demand to come from? Would it be in 2022, 2023, or later? That's one. Secondly, with such a spike in interest rate in Turkey, aren't you expecting NPL ratios to go up? If you can throw some light on that. Let's start with the first question about borrowing for gas for the North Field. This is a QatarEnergy decision. I don't think we can comment exactly when they are going to start borrowing for this project. We know the cost. We know that there will be some borrowing, but what is the structure they are going to use, I cannot comment on. Most likely not in 2021, right? Excuse me. Most likely not in 2021, right? No, it could be. This is a very large project. Borrowing will not be one year or two years. Borrowing will extend until the maturity of the project, which is 2025. There could be a part of that borrowing happening in 2021. Okay. Makes sense. In terms of impact of high rates on NPL ratio in Turkey. Definitely, having rates at this level will have implication on some of the accounts. This is why we are watching very carefully the inflow of NPL. Now, we were helped, especially during last year and early this year, in terms of some banks, especially public banks, were aggressive in lending. Some of that lending to the private sector were used to repay some of the loans in the private sector. That's why we have seen many of the loans, which had deferred installment for the last years, being repaid as a result, which helped in managing the NPL ratio. Going forward, we need to be very careful, and we are monitoring the NPL inflow very carefully. Okay. Sounds good. That's all from my side. Thank you. Again, as a reminder, to ask a question, please press star one. As a reminder, please limit yourself to two questions. We will now take the next question from Edmond Christou from Bloomberg Intelligence Research. Please go ahead. Hello. Hi. Thanks for the call. Do you still expect cost of risk to be between 65-75 basis points? You are at the upper end in 1Q. Just want to see if anything had changed with rising interest rate in Turkey. Also, can you give me some color on the domestic book, Qatar, in terms of staging? I believe most of the staging that happened in 1Q is related to the international market. If you can give some flavor on the corporate in Qatar. The second question is on the margin. We talk about four to five basis point decline in margin this year. Does it look optimistic to you with rising interest rate in Turkey? Where do you see domestic margin, given the yield curve right now? Thank you. Okay. Several questions. I will try to remember to answer all of them. Cost of risk, March is 74 basis points. Expectation for the year, as I mentioned in January, to continue to be between 70 and 75. I don't see us reaching 80 basis points as we have seen last year. Cost of risk this year will drop between the five, maximum 10 basis points. Margin, we have seen a drop of one basis point during the first quarter. If we look at margin for Egypt and margin for Turkey, and especially Turkey, there was a major drop in margin, especially in Turkey. This is something that we discussed in December, when we said that there will be major hit to net interest income in Turkey because of the increase, or the rapid increase in interest. It will take around three to six months period for Turkey to be able to absorb the implication and move forward, and we go back to seeing net interest income at normal level. Unfortunately, what happened in the first quarter in Turkey, again, made things more complex because no one can expect what the central bank is going to do in terms of managing the interest. Will it be a gradual drop? Will it be a sharp drop? With that vagueness, it's extremely difficult for us, whether we're here at the group level or in Turkey, to estimate what will happen in net interest income. That's why we need to wait and see what will happen. Even in Egypt, there was a drop in net interest income, but it's a marginal drop, because of suspending interest for some accounts. What would be the overall impact on the group? I think we are going to see another four to five basis points drop on interest margin. I will not be surprised if we end up the year around the 245 basis points, which still is a very strong NIM for a bank at our size. Okay. Thank you. Just follow up on the asset management, the reduction in the asset management. What the reason for this in terms of deposit and loan, and how should I think about in terms of fee generation going forward? Growth in loans in the group was only 2%, which it's a rarity for QNB to show this low level of growth in loans. The main reason for that is that mid-March, a couple of large loans matured, and they were repaid. The total amount is around QAR 11 billion, and this impacted the overall growth in loans in the group, especially in Qatar. However, looking at the pipeline for loans within QNB, especially in the Qatari market, we are seeing very strong pipeline. I still confirm the guidelines we gave on growth in loans at the beginning of the year. We still expect 5%-7% growth in loans. The momentum for growth in loans, especially in second quarter and going forward, will continue to be much better than what we have seen in the first quarter. Thank you very much. We will now take the next question from Aybek Islamov from HSBC. Yes, thank you. This is Aybek Islamov from HSBC. Just couple questions, really. I mean, looking at the first quarter net income, it looks like a pretty good start to this year. When you think about the guidance of net income growth you gave earlier, which I believe it was between 4%-6% increase in net income, how do you feel about your guidance after you reported first quarter results? That's my first question. Second question is, in your financial statements, you have unrealized translation losses on foreign currency, obviously, given this depreciation in TRY, and also some unrealized losses through other comprehensive income on debt securities. How you think it will evolve, and is there a chance you may recycle some of it in your income statement? Debt securities will not impact P&L. I don't see that impacting the P&L. Going back to the main question on overall growth in net interest income. I still believe that growth in net interest income for the year will continue to be between the 4% and 5%. I totally agree with you that we have been able to manage net interest income and interest margin very well during the first quarter, even with the drop in Turkey and Egypt. I think a growth of 5% overall for the year will be a very strong growth in terms of net interest income for the group. Aybek, is there anything else I missed in your questions? Yes. I also wanted to ask you about net income guidance you gave at the start of the year. I think it was between 4% and 6% for net income growth, EPS or net income. Yes. How you feel about the guidance now that you've reported first quarter results? I think today, I'm very confident that this can go up to 5% to 7%. We are very optimistic that we'll be on the high side of the guidelines. Mm-hmm. Okay. Thank you. Just to continue on this. Definitely, first quarter gave us very good sign that this should be a better year than what we originally anticipated. This is clearly reflected in how we manage our cost-to-income ratio. It's materially improved to 23.4% from 24.3%. This is much better than what we anticipated. The group is managing the cost very carefully. Growth in net interest income is better than what we originally anticipated, because we were very worried about the hits that will come from Turkey. The hit took place, the group were able to manage the cost of funding much better than originally anticipated. That why positively reflected on the new guidelines. At the same time, we are not seeing major pressure on NPL. The conservative approach we have taken in the last two years are paying off now, that's why we are anticipating that cost of risk will drop from the 80 basis points that we have seen last year. This can summarize how we are looking for the year 2021. Thank you, Mr. Ramzi. That's all from me. Thank you. We will now take the next question from Naresh Bilandani from JPMorgan. Thank you. Hi, it's Naresh Bilandani from JPMorgan. Thanks for your time. Mr. Ramzi, just two questions, please. One is, if I take a look at the presentation, you've kindly highlighted that the mix of U.S. dollar denominated loans has increased to 61% compared to 55% at the end of the last year. If you can please throw some color on what drove this change in the mix and if this could have any impact on your net interest margin, given the rise in the U.S. bond yields. That's one. The second is, my question is on the Qatari segment. If I take a look at the segmental financials, I see that the fact that your investments growth has been overall lending growth has been flat, but assets have grown quite sharply. Now I assume this is probably sitting in excess liquidity, because of the loan maturities that you saw in the first quarter. Do you believe that this could potentially offer a positive surprise, in the domestic segment loan growth in the later part of the year, given that we have seen a very solid start in the public sector loan book as we are seeing at the system level? Thank you. Absolutely. I will tackle your second question first. The mix in the balance sheet, of course, materially changed in the first quarter because the liquidity in the group was materially better. I've been in the bank now for more than 21 years. I don't recall when our loan-to-deposit ratio was at 96.1%. I need to tell you, as a CFO, I'm not very fond of 96.1. I think a normal ratio for a bank of our size should be between the 98% and 99%. Why? Because I need to have the best trade-off between a strong liquidity and a strong profitability. 96.1 definitely impacts net interest income for the group. This liquidity was reflected on the growth that we have seen on cash and due from banks, which grew by 24% from March last year and 12% from December. Major increase in cash and due from banks, which have a major small margin, which does not exceed 25-50 basis points in terms of margin. That's why I said I'm optimistic because I know that the pipeline for loans is materially stronger. This will be reflected on a much stronger growth in loans second, third, fourth quarter, that's why you are going to move growth in net interest income from 2%, which we have seen in first quarter to around 5%-7% by year-end, which will help overall net interest income for the group. In terms of mix of loans, in terms of currency, I mentioned that we have two loans maturing in March, both amounting to around $11 billion. Both of these loans were Qatari Riyal loans. At the same time, some of the loans that we gave during the first quarter were dollar-based because they were given to some companies that enjoy a cash flow in dollar, that was the reason why the mix changed. Going forward, I think we will go back to where we started the year in terms of the overall mix. Great. Thank you. That's very clear. As a reminder, to ask a question, please press star one. We'll now take the next question from Utan Rushhari from Bank of America. Please go ahead. Hi there, gentlemen, and thank you for the call. I wanted to maybe delve a bit deeper into where, in particular, you felt the cost optimization was most effective, and where you take the most encouragement in cost control. What the outlook is for your cost base going forward, given activity levels are picking up again. Are you going to start to see a resurgence in cost pressures, or do you think there are further cost optimization projects that you can undertake to continue the favorable trend in cost-income ratio through to the end of the year? My next question is with regards to the M&A market. Obviously, a lot of fallout last year. Valuations in the banking market have become a lot more attractive. How are you thinking about M&A at the moment? Is this still in the agenda? Are you closer to doing something? Are you less inclined to do something given the risks have also changed commensurately? We'd just love to get your thoughts on your views with regards to QNB and M&A. Thank you. M&A is always on the table. However, we are extremely careful at this stage because we know that the amount of risk that all banks are facing. Doing a proper due diligence at this stage might not give you the perfect result. That's why, even though it's always there in the back of our mind, but definitely, it's not a priority at this stage. That's why. Am I looking at anything today? No. The focus now on the group, increasing the efficiency of the group and managing the risks that still we're seeing, especially on international operations. This is probably the number 1 at this stage. In terms of cost control, one thing that we have benefited from COVID-19 is the utilization of digital channels. Definitely, we materially benefited from what we have invested in the last five years in digital channels, in shifting many of our customers to these channels instead of going to branches. That's why there was material drop in number of branches in Turkey. We closed around 50 branches. There was also material drop in the number of staff in Turkey. We limited the growth in number of branches in Egypt because now, again, we want to focus more on digital channels in Egypt. There will be new initiatives that we will announce in Egypt very soon that will show to what extent we are giving this importance, especially in the Egyptian market. In Qatar, again, different initiatives have been taken in terms of the number of manpower, focusing our investment on digital channels, reducing number of branches. All these added up to where we see cost-income ratio. Shifting more and more customers to our digital platforms will increase. We have seen that the acceptance of the customers to these platforms is much stronger today than it was 12 months ago, which is helping us and encouraging us to invest more in these channels in order to generate more business through these channels that will allow us to go back and rethink our cost again with the idea to reduce it further. Understood. Very clear. Just on your lack of appetite for M&A. One of the areas maybe you can address is your strategy with regards to the Saudi market and what you're thinking there, obviously, given the opportunities that could potentially be emerging for you and the huge demand for capital in that market. How is QNB looking at the Saudi market, and could that potentially be something that you would look to do M&A in if the opportunity arose in the future? Doing an M&A in the Saudi market with the limitation on foreign ownership will be extremely difficult. However, the Saudi market is extremely important for QNB. We already have a license for a branch. The branch is there, staff is there. We are now moving very quickly in order to start operation in Saudi Arabia again. We are very optimistic about Saudi market, and we believe it will be one of the most important markets that we are going to have going forward, after, of course, Qatar, Egypt and Turkey. Doing an acquisition in Saudi Arabia, I don't see that happening because as far as I remember, the maximum ownership you can have is 40%. I don't see us As we always said, if QNB is going to be interested in anywhere, in any market in the world, we would only interested if we can get 50% and above to allow us to consolidate. And this option is not available in Saudi Arabia. Understood. Thank you. As there are no further questions, I will hand the call back over to your host for any additional closing remarks. I want to thank everyone on the phone call. Ramadan Kareem to all, and hopefully, we will see you in the conference call in second quarter. Enjoy the rest of the day. Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.