Hello everybody, a warm welcome to QNB Group first quarter 2022 financial results conference call. My name is Bethany, I will be your operator today. If you would like to ask a question at Q&A, please press star followed by one on your telephone keypad. I will now hand over to your Arqaam host, Jaap Meijer. Jaap, please go ahead. Thank you, Bethany. Good afternoon, everyone. Thank you for joining us today. This is Jaap Meijer, the Head of Research at Arqaam. On behalf of Arqaam Capital, I am pleased to welcome you to the Qatar National Bank Q1 2022 earnings conference call. I have with me here today from QNB management, Mr. Ramzi Mari, the Group Financial Officer, Mr. Noor Mohammed Al-Naimi, General Manager of Treasury, and Mark Abrahams, Assistant General Manager, Trading and Treasury. We will now turn the call over to Mark Abrahams. Mark, over to you. Thank you very much indeed, Jaap from the Arqaam team for hosting the call today. Welcome everyone for our call. Before we begin, it is very important to mention, please, this call is for analysts and investors only, any media should please disconnect now. I will begin by giving an overview on macroeconomic environment in Qatar. I will cover QNB's financial results for the quarter ended 31st of March 2022, and finally, I will open the floor to questions and answers. Qatar was one of the least affected countries in the world by the economic effects of the COVID-19 pandemic. This was in large part due to the effective management of the economic support measures launched by the Qatari government and the Qatar Central Bank. As a result, the economic recovery is in full force while the banking sector remains resilient, presenting significant growth, ample liquidity, adequate levels of capitalization, high asset quality, and robust profitability. The ramp-up of preparations for the 2022 FIFA World Cup are driving a strong growth in Qatar's non-energy private sector. Indeed, the Qatar Financial Centre's Purchasing Managers' Index has been indicating expansion since July 2020 and has even accelerated in recent months, reaching 61.4 in February of this year. This signals sustained improvement in business conditions. Kicking off in November, the 2022 World Cup will be the largest event ever hosted in the region and will boost economic growth across the economy, particularly in transport, communication, media, hospitality, retail trade, and other service sectors. In the medium term, tailwinds from investment in increasing hydrocarbon production will drive economic growth, with six new LNG trains planned that will increase Qatar's LNG production by 64% to 126 million tons per annum. Positive spillovers from increased hydrocarbon production will combine with diversification efforts and structural reforms to boost economic activity and spending in the manufacturing and service sectors. Over the longer term, private sector growth will be further boosted by continued structural reforms, including ownership liberalization, the promotion of foreign direct investments, labor reforms, the permanent residency program, and several initiatives to support entrepreneurship, as well as self-sufficiency in strategic sectors. Qatar is therefore laying a strong foundation for continued GDP growth over the medium and long term through investment, diversification, and stronger private sector growth. I will now move on to QNB's financial results for the quarter ended 31st of March 2022. Key financial results are as follows. Net profit was QAR 3.6 billion, or $1 billion, up 9% compared to first quarter of last year. Robust revenue growth resulted in increase in operating income to QAR 7.7 billion, or $2.1 billion, up 16%, demonstrating QNB Group success in maintaining growth across the whole full range of revenue sources despite market volatility. As a result of higher revenue growth, QNB Group has continued to reduce the cost-to-income ratio downwards from 23.4% in Q1 of last year to currently 20.8%. Total assets are at QAR 1.108 trillion, or $304.5 billion, up by 6% from March 2021. This was driven by growth of 6% in loans and advances to reach QAR 763.2 billion, or $209.6 billion. The QNB Group remained successful in attracting deposits, which resulted in an increase in customer funding by 5% from March 2021 to reach the current level of QAR 788.1 billion, or $216.5 billion. This has improved the group's loan-to-deposit ratio to 96.8%. QNB Group was able to maintain the ratio of non-performing loans to gross loans at 2.3%, a level considered to be one of the lowest amongst financial institutions in the Middle East and Africa region, reflecting the very high quality of the group's loan book and the effective management of credit risk. In addition, the Coverage Ratio on Stage 3 loans is at 123%. Total equity increased to QAR 97.9 billion, up by 5% from March 2021. The bank's Capital Adequacy Ratio stands at 18.9%, comfortably higher than both QCB and Basel III requirements. The group is well capitalized and comfortably exceeds other regulatory ratios. I will now open the floor to questions and answers. Thank you. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you change your mind, you can press star 2. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Rahul Bajaj from Citibank. Rahul, please go ahead. Hi. Thanks for taking my question. Really two questions from my side. The first one is on margins. If I recall correctly, you talked about a gradual two to three basis points compression in margins over the next few years per annum. I just want to understand, how do you think about margins now, in Qatar, Turkey, and Egypt, the key main geographies, with the rate projection that we are now talking about six, seven, eight rate hikes this year? How do you think that will pan out on your margins, specifically in Qatar, but also in Egypt and Turkey, where we are also seeing rate hikes, especially in Egypt? That's my first question. My second question is on the loan momentum that we saw in the first quarter of the year. Corporate lending growth appeared to be pretty weak. I'm assuming there are a bunch of repayments happening there. Just wanted to understand, how is your outlook for lending growth on the corporate side and also a group level? Do you expect these repayments to continue for the remainder of the year? Thank you. Thank you. Margins in the first quarter was much stronger than we had anticipated at the end of last year, considering the progress and interest in Turkey and Egypt and in Doha, and in many other jurisdictions where we operate. That's why we've seen margins increasing by 2 basic points from 247 to 249. Which is a good momentum, which we are hoping to continue. We always said that an increase in Fed rate by 100 basic points will have a positive impact on Net Interest Income of around QAR 500 million. Of course, there's many factors because this is a model-based calculation. In reality, many factors can impact the net added value of any increase. Definitely, there will be major added value from the increase in interest rates in Qatar or in most of the countries where we operate, considering the structure of the balance sheet that we have built. Based on this, and based on the expectation of more than 2 hikes Because in the budget, as I said in December, is that we budgeted for 2 hikes. We are expecting more than 2 hikes, actually much more than 2 hikes. Based on this, we expect margin to grow this year. The extent of the growth, we need to wait to fully calculate the overall impact. I can say today that I will not be surprised if we see margin growing by 5 to 7 basic points, by end of this year which will be very positive to the overall operating income for the group. Loan momentum, I agree with you, it wasn't as strong as we wanted it to be. Egypt and Turkey continued to show good numbers. In Qatar, we haven't seen the growth that we wanted it. We always knew that when the state or oil prices come down, the state need to borrow, and QNB benefits. When oil prices and gas prices are high, the state will become very liquid, and some of the loans they have borrowed during low oil prices will be repaid, which is natural. We know this. We expect this to continue. We have seen this about 4 or 5 years ago when oil prices was close more than $100, and QNB at that time shifted focus more to international expansion in terms of loans. This is probably what we are going to do now. You are going to see more growth in loans coming from international market to compensate the low growth in loans in the public sector in Qatar. The private sector will continue to be growing. The momentum of growth, we need to wait and see. In summary, the guidelines for loans that I gave at the beginning of the year, which I was talking about 6%-8%, today, I would say it's around 5%-7%. It's lower by 1%, which is a big number at the group level. The second issue that we have to realize, that the devaluation of 15% in the Egyptian pound impacted the growth on the balance sheet. When you look at absolute number of growth in loans, the devaluation, whether it was even in Turkey or in Egypt, impacted the overall growth in the balance sheet during the first quarter. Still, I agree with you that the overall growth in loans, it wasn't as we anticipated at the beginning of the year. Thank you. Okay, cool. Thank you. Another reminder to press star one to ask a question. Alternatively, you can press the flag icon if you have joined us online. Our next question comes from Waleed Mohsin at Goldman Sachs. Waleed, please go ahead. Yes. Thank you much. Good afternoon. Thank you for the presentation. A couple of questions from my side. The first one, if you could please talk about what impact you expect from the devaluation and I would say the rate hike as well. You talked about the rate hike impact, but the impact of devaluation on the Egyptian business, both in terms of asset quality or capital and loan growth and how should we think about the recent developments in Egypt impacting your business? Secondly, on the same question, things seem to have, at least from the outside, normalized in Turkey. Currency has been stable, and there's been some de-dollarization in the deposit market. Your thoughts on that front, what's happening on the ground in Turkey, both in terms of liquidity, would be very useful. Finally, Ramzi, if you could please provide an update on your guidance. You talked about loan growth, some of the other items like credit quality, et cetera, especially given that we see that you've built up NPL coverage again, during the first quarter. There was a small move in Stage 2, but it seems that overall Coverage Ratio has been strengthened again during the quarter. Your guidance for the year, especially on cost risk, will be very helpful. Thank you. I will start with guidance because this will give some answers to the first and second question related on Turkey. In terms of overall guidance for the group, balance sheet, we expect it to be 5%-7% whether it was assets, loans, or deposits. Profit or loss, it will be 7%-9%. In terms of Egypt, no major change from the guidelines I gave before. Assets 12%-14%, loans 11%-13%, deposits 12%-14%, profit or loss, marginally higher, 18%-20%. Turkey, definitely, there are major change in the guidance, considering the numbers that we have seen. In assets, we now move to 30%-35%, loans 35%-40%, deposits 35%-40%, and profit or loss 65%-70%. It could be even higher than that in profit or loss. Definitely there are positive movement on the guidance for Turkey. Egypt is close to the same. For the group, the balance sheet guidance is very marginally lower, whereas the profit or loss still the same. In terms of the devaluation and the impact on loans, of course, it's still too early to mention. However, the Coverage Ratio in Egypt, which we always had more than 100%, clearly shows that we wanted to be very conservative in how we manage our business in Egypt. Today, we stand at 110%. This is the ratio we want to keep. NPL ratio marginally grew from 3.4% to 3.5%. I expect it to grow even a little bit higher, overall, Coverage Ratio will continue to provide a buffer and protection for the group. We have seen good momentum in terms of business and growth in loans, much better than last year. We have now a new management that clearly show a strong momentum in how they are managing the business, especially how they are managing the overall margin for the group. They are giving much more focus on retail business, which is something we wanted all the time. Margins is extremely an important factor where they focus. The way they are managing cost is also very beneficial for the group. Today, in the first quarter, we have seen cost-to-income ratio materially drop from 28% last year to 24.5% this year. From the way that numbers are being developed in Egypt under the new management, we are seeing good momentum, which definitely we hope to see continue. The growth number this year will be much better than last year. Return on Equity will continue to be strong. cost of risk will be materially higher than last year because this is the momentum we want to keep in order to ensure that the Coverage Ratio continue to be strong. Finance bank, definitely with the market that we are seeing, I cannot say it's stable, but what I can say is that we are used to what we have seen. Management in Turkey, as I mentioned before, it is something that they have lived with for the last 20 years, so they are used to it and they know how to manage it. The way they manage the overall hedging of the balance sheet ensure that they are protecting themselves against any changes. We have seen extremely strong progress in numbers in Turkey. We have seen margin materially growing close to double. We expected this, to be honest, because interest last year in the first quarter was extremely weak. Whereas it started to progress in the third quarter of last year, fourth quarter was materially better. First quarter of this year was continuation of the momentum that we have seen in the fourth quarter last year, which is very good. This will continue, we expect interest in Turkey to continue to be strong this year. We need to give a credit to the team in Turkey who were able to manage the overall structure of the balance sheet, whereby they will benefit from the situation that we have today. Again, cost-to-income ratio in Egypt materially improved. We have seen a drop from 35% last year to 28% this year, which is again, a good momentum in terms of how they are managing their overall operating income. NPL dropped from 3.1 to 2.6. Coverage Ratio materially improved from 122% to 129%. We can summarize by saying Turkey business this year is a very good story, a good momentum. We have seen the decisions that we have taken as executive management last year and the way we structured the balance sheet. We are now gaining from the hedges that we have built, we hope that this will continue for the rest of the year. In the overall for the group, we have seen a much stronger growth in overall operating income. I was talking about 10%-12% of operating income growth, now we are seeing 16%. This is very strong, this has pushed us to increase cost of risk. This should not be surprise to analyst, because I always said is that if we see operating income growing stronger than we anticipate, the only way for us to be able to manage the overall growth in the profitability is by pushing our cost of risk a little bit higher. That's why cost of risk moved from 92% to 97%. The overall result is that we were able to increase our Coverage Ratio from 117% last year to 123% this year, which is very good. The only issue that I'm going to have in the Coverage Ratio is that the resistance of the external onset on this ratio. Because based on the standard, your Coverage Ratio should not be more than 100%. Having it at this very high ratio clearly shows that there is something not correct. You are being too conservative, you are building a provision on nothing, which they will not accept. This will push me gradually to increase NPL ratio, because this is the only way for me to manage the coverage ratio, is by pushing NPL ratio higher. NPL ratio in the first quarter stood at 2.3, the same as 2021. I think this will be marginally start to grow in order for us to be able to manage the overall coverage ratio. I will not be surprised if we see it at 2.5 by end of this year. Waleed, I think this is a summary of the three questions together. That's perfect. Very clear, Ramzi. Just one thing. If the NPL ratio moves up, as you stand today, you would expect Turkey to be the driver or Egypt to be the driver? Turkey will not be the driver for NPL this year. Egypt will never be able to contribute the number that I need to manage the coverage ratio. I think the bulk will be from Doha and partially from Egypt, but not from Turkey. Got it. Thank you much, Ramzi. Very helpful. Thank you. The next question comes from Edmond Christou of Bloomberg Intelligence. Edmond, please go ahead. Hi. Thanks for the call today. Just a follow-up on the cost of risk. If I hear correctly, you said the cost of risk will be materially higher than last year. I do understand the concept of building a buffer on Stage 3 and the limitation from regulator. I am a bit surprised that 2.5 is the level you are targeting by the end of the year, not three, which I thought it will give you more room to build more buffer. The NPL in Qatar, this is mainly driven by specific sector where you see there is proactive downgrade for you. And how much it takes in terms of time for this NPL to go back to Stage 2 and Stage 3? What is the progress there? The second question I do have is on Turkey. When you talk about the loan growth of 35%-40%, if I'm correct, is this organic growth or it's a conversion of US dollar into Turkish lira loans? I just want to understand how much of that is organic and non-organic. The last question is on the cost of funding. When I look at the US dollar spread for debt, it's around 100 basis points. It hasn't picked up regardless of the tapering or hawkish Feds and interest rate rises. Expectation, I think the oil prices probably has helped on this. Do you expect more issuance on debt this year? How do you see the energy prices and the excess of liquidity within the government helping the cost of funding a local market in Qatar? What's your expectation on the cost of funding in Turkey? Thank you. Sorry for asking a few questions. To be honest, you asked 10 questions. Some of them is economy, some of them is financial, some of them is liquidity. I will be honest with you that I got lost. I prefer that you ask two or three questions whereby I can focus on them. In terms of the overall issuance that we expect, I will let Mark answer this. Certainly, Ramzi. Can you hear me, Edmond? Yes, I can hear you. Okay. Yeah, in terms of issuance, we've got a relatively light refinancing profile this year. In light of the volatility of the markets and in line with what I've said to you before, we are a very opportunistic issuer. We always have been, we always will be. We don't have a requirement to do X amount per quarter. We never have done, and that's not the way we run our wholesale funding. We have a very strong, healthy dollar liquidity buffer. That's even increased for reasons that you said, obviously, because of the current situation, the elevated hydrocarbon pricing. We are finding more significant revenue coming in at a sovereign level. Obviously, that is filtering down to the banking system. QNB is a major part of that. From a dollar liquidity point of view, we're particularly comfortable at the moment. We remain very opportunistic indeed in terms of You know where we would issue in the future. If we see a window, we can move very quickly. At the same time, if we feel the spreads are widening out, that overall costs are more expensive, that it's not a market that's good for issuance, you will not see QNB in the market. I think to summarize, very healthy liquidity position, in riyals and in dollars, as well as the revenues from the State of Qatar. We're also seen to be a preferred safe haven, if you like, for funds on a global basis. We're being very selective indeed, taking high quality, longer term money, selectively at very, very fair pricing. The last part of the issuance piece, I think again, is that we also run as well as coming to the market in the public space. We are an active bank in private placements too, and that's a major piece of what we do. Because of that being very proactive for QNB, that also further decreases the need for us to go to the market. Okay? Okay. Thank you. Very helpful. Thank you. Going back to the rest of the question, Edmond. Yes. Turkey, very quickly, this is organic growth. The question about the cost of risk and the growth in cost of risk and how we going to manage Stage 3, Stage 2, Stage 1. Now, for me to push NPL ratio to 3%, I need to have the best trade-off between managing the NPL ratio, managing the coverage ratio, managing the cost of risk, and not showing weakness in the overall portfolio of QNB. If I push the ratio from 2.3% to 3%, many people will look at this, even the rating agencies, as weakness in the book, which will put me under pressure. That's why I need to overall manage the growth in NPL in a way to ensure that I manage the coverage ratio without giving a wrong idea to some people that there is weakness in the book itself. Some of the loans will move from Stage 2 to Stage 3, even though they don't need to, because I need to manage the ratio. At the same time, I need to be careful about to what extent I use that tool to manage the Coverage Ratio. Number 2, when these loans that are Stage 3 can move back to Stage 2 or Stage 1, it really depends account by account based on the conditions that we are going to have. Definitely we are going to see some of these move directly. The way we need to manage this is to continue to push for a stronger operating income. We're still optimistic that this year will be a very strong year in terms of operating income, which will give us even much more room to increase some of the provisions that we need to take. We need to look at this on a quarter by quarter basis, based on how we are seeing the progress and the operating income. Based on this, we will manage the cost of risk and the overall NPL ratio. Hopefully, I was able to answer the question- Yeah that you wanted to raise. Yeah. Very helpful. Thank you. I think it's correct to assume that Stage 3 is likely to pick up and you will build the buffer on that as well. You will be strengthening it as a Stage 3 pick up. Now it's around 1.7%. It will pick up, but it will always depend on how I'm going to see the Coverage Ratio progressing. Okay. Sounds good. Thank you. I appreciate it. Thank you. Thank you. The next question comes from Aybek Islamov at HSBC. Aybek, please go ahead. Yes. Good afternoon. Good morning, everyone. Thank you for taking my question. I want to ask you about Egypt. It looks like your subsidiary in Egypt, they had to revise down their dividends. I believe it's upon the recommendation of the Central Bank. Can you please elaborate on the Central Bank action? I think your subsidiary was not the only one to receive that recommendation from the Central Bank of Egypt. Secondly, on the loan growth. Well, the start of the year, a bit weak, but when do you expect the loan growth to recover? Is it second quarter? Where do you see the pipeline today, excluding repayments? That's my second question. That's it. Thank you. Aybek, I will start with the second question, which is loans. It is extremely difficult for us to project the progress in loans quarter and quarter because it's highly impacted by the action by the state. If oil prices continue to be strong, we will see more drop in the overall exposure to the government, which will impact the overall growth in loans in the group. As I mentioned, you are going to see more growth coming from overseas operations, our branches in Singapore, London, Paris, Kuwait, Oman, of course. These growths will never be able to compensate any material drop that takes place from the state. For me to give you a number now, I might be wrong in the longer term because it's highly dependent on action taken by a party that we cannot control. The momentum that we are seeing today in loans is not as we have expected when we built the budget, that's why the guidance came down from six to eight to five to seven. In terms of Central Bank action and any comment on this, to be honest I'm not used to comment on actions or recommendations by central banks. The drop in dividends that took place in Egypt was based on different factors. It's not only Central Bank of Egypt who will tell us, do this or don't do that. At the end, the priority is what is the best for QNB Group. This is how the decision was taken. Capital Adequacy Ratio in Egypt today stands at 22.5%. Last year, it was 22.8%. Considering the momentum of growth in loans that we are seeing, we really need a stronger capital in Egypt, because to allow us to continue to grow more than 12%-14% in loans year-on-year. Whether the same decision will be done for other banks, I really don't know, and I can't anticipate on that. Mm-hmm. Okay. Yep. Very helpful. Thank you. Thank you, Ramzi. The next question comes from Naresh Bilandani from JP Morgan. Naresh, please go ahead. Yes, thank you. Hi, Mr. Ramzi. It's Naresh Bilandani from JP Morgan. three questions, please. One is, if you could please comment on the improvement in the delivery that we have seen in income from associates, since we don't have a detail from the associate investments in the first quarter, and the good delivery we have seen. That'll be helpful if you can please throw some light there. That's the first question. Second is, just to follow up on the question that Aybek posed on the loan growth. Going into the later part of the year, into Q4, should we anticipate any temporary pickup in the loan growth given the FIFA event that we are going to see in the country? Will it just be more economic momentum, but not necessarily translating into growth? Even if temporarily, I'm just trying to understand how should we think of the later part of the year from a balance sheet perspective. The third question is, if you could please throw some light on the point where you mentioned that you would look to increase the NPL/Stage 3 ratio. How does one go about doing that? I know in some of the systems, there's a regulatory requirement that if a loan stays in Stage 2 for a certain period of time, even if it is performing, it has to be moved to Stage 3, but just keen to understand this point better from you. Thank you. Okay. We start with associates. Income from associates comes mainly from three parties. HBTS in Jordan, PTI, and CBI. The three, if you look at their individual numbers, they showed materially strong growth in profitability 2021 versus 2020. This, of course, will reflect in terms of the numbers. 2020, all of them were highly impacted by the coronavirus. 2021 was much better for them, and we have seen good progress. Some of them even showed double the number of profitability that they have shown in 2020. In terms of World Cup, do we expect loan growth in fourth quarter to be higher? Not really. Because any project or any investment that the country needs to do for the World Cup, it has to finish maximum by the second quarter of this year. That's why I don't see a pickup in the fourth quarter loans just because of the World Cup, because I don't see the relationship between the World Cup and loans. All projects related to the World Cup or any borrowing related to the World Cup would have been done much earlier than the fourth quarter. NPL, for you to classify a loan on NPL, there's maybe 10 or 12 criteria defined by central bank regulation, which tells you when you need to move a loan from stage 1 to stage 2, stage 2 to stage 3. It's not only the days of past due. You have a lot of room for you to move loans and to justify the movement of some loans to stage 2, from stage 2 to stage 3. The regulators usually don't argue with you when you are conservative. They will strongly argue with you if you want to move a loan from stage 3 to stage 2 because you need to clearly show that the loan is stronger. However, for you to be conservative and move some loans from stage 2 to stage 3, because you have a reason, it's not need to be of only past dues, they can give you more room because every single central bank in the world like any banks regulated by them to be conservative. Okay, Mr. Ramzi. Thank you. Okay. Thanks, Naresh. Another reminder to press star one or the flag icon to ask a question. The next question comes from Leah Al Haig from Bloomberg. Leah, please go ahead. Yes, hello. Thank you for taking my question. I just have a question concerning the Foreign Currency Translation Reserve. There's a QAR 2.5 billion addition to that. I was just wondering how much of it comes from Egypt and how much of it comes from Turkey. Also, just my second question is a follow-up from before. How much are you budgeting for the private sector loan growth for this year? Thank you. The Translation Reserve, two-third is coming from Egypt, one-third is coming from Turkey. Private sector, as far as I recall, I don't have the number in front of me, but I remember it was around 6%-8%. Okay, perfect. Thank you. Thank you. We have no further questions at this time, so I'll hand it back to the management team for any further remarks. I want to thank everyone who participated in the phone. Good numbers in the first quarter. We are optimistic for the second quarter and for the rest of the year. Hopefully that we will meet again with good numbers in the second quarter. Please enjoy the rest of the day, and see you in three months time. Thank you. This concludes the QNB Group First Quarter 2022 Financial Results Conference Call. Thank you for joining. You may now disconnect your lines.