Good afternoon, ladies and gentlemen. I'm Mohamed Farhan, Head of Investor Relations, and I welcome you all to the Commercial Bank 1Q 2025 Results Call. On this call today, I have onto my left Joseph Abraham, who is the Group Chief Executive Officer of Commercial Bank of Qatar, and onto my far left is Noman Ali, who is the Chief Financial Officer. During the duration of the call, we will put you on mute, and once the presentation is complete, I'll come back to you for questions and answers. Now, may I request everybody to please put yourself on mute, and now I hand over to Joseph Abraham.
Thank you, Farhan, and good afternoon to everyone, and thank you for joining us on this call. Q1 results have been announced, and I would just like to highlight that whilst the top line, it's shown a decline of 18%. There are two major factors. One is, of course, the share option scheme variability, which, you know, because of the movement in the share price, that has been a big change from last year. The second is, on a conservative basis, we have implemented the 15% global tax charge due to the ownership of a Turkish subsidiary. That has brought us within that net. These are the two main factors. If I were to remove the tax charge, then our profit would be down in a minor amount of a 1.5% - 2%.
Now, our Turkish subsidiary, also because of hyperinflation, compared to last year's first quarter when they made a very small loss, this year they made a loss of QAR 35 million.
QAR 32 million.
QAR 32 million. That has resulted in a further depreciation. If you were to net out the tax charge and the adverse change in the Turkish subsidiary's performance, then actually the performance of the bank has, the profit has gone up by 2%. I think that's a fundamental point that needs to be kept in mind. We are working on the Turkish subsidiary prospects for the year, and we believe that it will move into a more positive performance. We have also reduced the headcount by 30%. The branch network has been streamlined, and therefore we have taken the necessary measures given that Turkey remains a continuing volatile environment, and we are managing within that scope, but we expect it to be breakeven by the end of the year from our overall loss position. The second piece is the tax.
That is a 15%, but the effective tax rate may be lower than 12%.
10%.
Sorry, 10% after we do the various deductions. We are looking at ways of how we can mitigate this effect. I think one of the key aspects will be the level of fixed assets of the overseas subsidiary. If you can bring it below the QAR 50 million threshold, we might be able to do something. All these are being explored, which could help mitigate the tax charge. Overall, I'd say that we continue to be focused on executing our strategy. You know, that means good quality loan growth. It means building out our retail business, and you'll see our fees and income have gone up well in our overall business. I think also we are seeing significantly improved performance from National Bank of Oman and United Arab Bank.
Our associate banks, which a couple of years ago were a drag on us, have now turned around, and we expect them to be contributing positively. It is only the Turkish subsidiary which needs work, and we are on that in a very focused manner. I'll hand over to Noman, our CFO, and then he will talk you through the results. Thank you.
Hello everyone, and thank you for joining in. Getting into the results for the first quarter of 2025, I'll focus mainly on slide number 8, which shows the consolidated financial highlights of the group, both on a reported basis and also after excluding the long-term incentive scheme, which strips out the impact of IFRS 2 share option scheme. Overall, the group reported a net profit before Pillar 2 tax of QAR 704.3 million for the first quarter of 2025, as compared to QAR 801.6 million for Q1 2024. The 12% variance includes a loss of QAR 31.9 million from our Turkish subsidiary Alternatif Bank, and the impact of the long-term incentive scheme related changes of QAR 84.8 million.
If we exclude the impact of the Long Term Incentive Plan and if Alternatif Bank performance was similar to Q1 2024, a net profit before tax would have been 2% higher. Further, due to the likely implementation of the global minimum tax of 15%, the BEPS Pillar 2 tax, a tax charge of QAR 52.9 million was also reported. Overall, this resulted in a decrease in reported net profit after tax to QAR 651.4 million. I would like to highlight that the group may benefit from certain relief from the executive regulations, which are not currently enacted in relation to the BEPS Pillar 2 charge. Once the executive regulations are enacted, and if the reliefs are applicable to the group, this may result in a reduction in the tax expense. In relation to operating income, our reported operating income is lower by 9.5% year-on-year.
This is primarily driven by contraction in net interest income, which was slightly offset by higher fee and other income. If we deep dive into the numbers, our net interest income decreased year-on-year. The key reason for the decline was firstly the timing of the downward rate revision, where the assets were repriced at a faster pace than the liabilities, and secondly, due to higher cost of funding during the quarter. As a result, our net interest margin stood at 2.2%, and for the rest of the year, we are expecting to keep it in the range of 2.2%-2.3% as well.
As Joseph mentioned, total fees and other income were higher by 19.8% to QAR 349.4 million year-on-year, mainly due to an increase in the group's core net fee and commission-based income, which improved year-on-year by 24%, supported by retail banking fees, including cards, wealth management, and remittances, and on the wholesale banking side in particular in relation to payments. In terms of operating expenses, the reported operating costs were higher year-on-year, primarily due to the bank's continued investment in people, digital innovation, and service proposition enhancements, along with the increase in operating costs from our operations in Turkey, including certain right-sizing initiatives. Further, the lower operating expenses in the first quarter of last year of 2024 were also attributable to decreased staff-related LTIP costs as a consequence of IFRS 2 due to the decline in share price last year.
If we exclude the LTIP impact on operating costs, the year-on-year increase is 7.8%. As a result, the group's reported cost-to-income ratio reached 31%. At a domestic level, the cost-to-income ratio on a reported basis is now at 26.2%, supported by investment in key identified areas. Alternatif Bank's reported cost-to-income ratio is 88.4% compared to 66.4% in the same period in 2024. Moving on, the net provisions decreased to QAR 149.1 million for the first three months of 2025, from QAR 240.5 million in the same period in 2024. In relation to provisions on loans to customers, although our cost provisions remained consistent in line with previous years, we saw higher recoveries at a CB domestic level, nearly QAR 22 million higher than last year.
Therefore, our net cost of risk on loans was 34 basis points, whereas the gross cost of risk on loans is at 72 basis points for the three months ended 2025. Aligning with a conservative approach on provisioning, we expect at the consolidated level that the gross cost of risk of between 115-130 basis points and the net cost of risk of between 80-100 basis points for 2025. As of March 31st, 2025, the NPL ratio decreased to 5.9% from 6.2% at the year-end, while the loan coverage ratio, including ECL, stood at 85.4%. Moving on to the balance sheet, our total assets are up by 1.7% to QAR 169.1 billion. The gross loans and advances increased by 5.8% to QAR 94.9 billion due to higher government and public sector borrowings.
At the same time, it is important to mention that on the retail side, we see good progress in on lending growth, which grew 11.9% year-on-year. Customer deposits decreased by 3.8% to QAR 76.4 billion at March 31st, 2025. This is mainly driven by a decrease in time deposits. Further, we continue to grow our low-cost deposits, which increased by 5.7% year-on-year, reflecting our efforts to diversify funding sources and strengthen balance sheet resilience. Our capital remains strong. CET1 and the capital adequacy ratio stood at 12.3% and 17.1% respectively. The capital adequacy ratio of 17.1% is an improvement from 16.4%, which we reported in March 2024. As Joseph mentioned, our associates NBO and UAB continue to deliver better performances. Commercial Bank is working closely with both these entities in the execution of their strategies.
In relation to our Turkish subsidiary Alternatif Bank, it reported a net loss of TRY 311 million, equivalent to QAR 31.9 million for the three months ended March 31st, 2025, compared to a net profit of TRY 78.7 million, equivalent to QAR 8.6 million for the same period in 2024. Although there is an improvement in performance with higher operating income, the results were mainly impacted by higher operating costs, primarily due to certain right-sizing initiatives, including FTE reductions and more focus on digital banking. Overall, the impact of hyperinflationary accounting is TRY 485.5 million, QAR 49 million equivalent for the three months ended 31st March across various lines. Commercial Bank will continue to report under IAS 29 till Turkey continues to be classified as a hyperinflationary economy.
Alternatif Bank at a consolidated level is approximately 3.7% of the overall balance sheet size. That's an overall summary of our results. Happy to take any questions.
Thank you very much. Now we can move on to question and answers. If you have any questions, please click the reaction button at the bottom of the screen and raise your hands. We will go to the first question that we have from Chiro Ghosh. Chiro, please unmute yourself and go ahead.
Hi, this is Chiro Ghosh from SICO BSC . Thanks for the call. Just a couple of questions I have. First one is, if I recollect correctly, you are expecting NIMs to recover back. Please remind me if my memory serves me right or not. You are expecting NIMs to recover back in 2025, maybe around 10 basis points odd. First quarter does not look like it, so if you can give some kind of guidance how we should look at the full year. Also, parallelly, I saw that over the last two quarters, the loan growth has been quite good, but it has been funded by the interbanks. Is this model sustainable, or if you move back to deposits, your margin will get pressurized or not? That is my first question. Second one is related to the fee income. The fee income was quite strong in this quarter.
Is there any one-off element in it, or you can continue these kinds of fee income? Yeah, these are my two questions.
First of all, in relation to NIMs, we ended the year with around 2.4% of our net interest margin, and our guidance for the year was that we will see around 10-15 basis points of pressure, downward pressure on the NIMs. We currently are at around 2.2%, and we expect to maintain between 2.2%-2.3% of NIM during the year. Secondly, in relation to your question on the mix of interbank versus loans growth in the loan book, we really focused on increasing our loan book, and especially on the corporate and retail side. We expect a healthy pipeline which will continue to increase the loan book and lesser on the interbank side. Thirdly, your question on.
You were asking how we fund it.
Yes.
How we fund it through CASA.
Yeah. On the funding side, obviously, we are focusing on increasing our low-cost deposits, and what we saw in the quarter was that our low-cost deposits increased by 5.7%. We are focusing more on getting our CASA deposits higher during the quarter.
I would just add to that that we also have plans for QAR bond issuance to support the QAR issuance. And we're also, if you look at how the market situation is evolving, we will also be doing some overseas issuances, which will also, you know, we were just waiting for some of this volatility to go down in these markets, which is delayed. A combination of local currency bond issuances, of course, CASA growth, and some, of course, we will also grow deposits locally, plus the overseas currency issuance will be what's funding. Will it have an effect on our costs? Actually, some of the interbank is quite high cost, so I would expect the change in funding mix to be neutral to slightly positive, if anything, as compared to interbank.
Any other questions on the fees? What are the one-offs? If you have any one-off included in the results that you release, actually, most of the fees are through our normal transaction banking and cash management. There is about 10% element is one-off through realization of some gains of the sale of assets that have been included. Other than that, the majority of those are normal standard fees that we recover through our normal business activities.
Okay. Okay. Just to revise, just to, so you said the NIM would drop by roughly 10 - 20 basis points, right, for the full year versus 2024?
No. We currently, the first quarter, our NIM ended at 2.2%. We will maintain between 2.2%-2.3%.
Got it. Okay. That's all from my side. Thanks.
We have another question from Rahul Bajaj. Rahul, please unmute yourself and go ahead.
Hi. This is Rahul Bajaj from Citi. Thanks for taking my question. I have three questions, actually. The first one is on tax rate. I see that the effective tax rate is below the 15% threshold. What has resulted in the effective tax rate being lower? You mentioned about some executive regulations, which if works out, you will probably see even lower tax rates. Do we have room for tax rate to go back to, say, 2023, 2024 levels, i.e., close to zero, or we will remain in that kind of 5%-7%, 5%-10% sort of effective tax rate going forward? Any view on that would be useful. That is the first one. The second one is on cost of risk.
First quarter cost of risk was quite low, around 35, 36 basis points on a net basis, but you are sticking with your full year guidance of 80-100 basis points on a net basis. Does that imply that going forward, one, the recovery is going to be a lot lower, and two, we will see an acceleration in cost of risk? Is that a fair understanding? Kind of linked to the cost of risk point, the way oil price has reacted in the last few weeks, I understand Qatar is more energy linked, but how do you see the implication of energy price moves on your cost of risk going forward? That is kind of my second question on cost of risk. My third and final question on margins, this is more on Turkey. I see Turkish margins have also gone down sequentially in one queue.
This was slightly counterintuitive because we saw rates come down in Turkey. Ideally, margins in Turkey for most other banks have gone up during one queue. Why could not CBQ's Turkish margins expand in one queue? That is kind of my third question. Thank you.
Right. Thanks, Rahul. Thanks for your question. Just if we start with the first question on the tax one. The effective rate is lower because of two elements. One is that there is a sports levy of 2.5%, and that is deducted from the 15%. That brings it down to like 12.5%. Then there are other admissible deductions as well in relation to certain items like salaries and.
If I were to just add to that, Noman, on the domestic tax that you comment, you obviously exclude the associates and the ordinary losses. From the domestic stack, you will take out the AT1 payment that we had to make on our AT1 . Also, the OECD guidelines allow us to reduce substantive income exclusion with regard to fixed assets as well as staff costs. There is an exclusion of a particular bond from that particular income base as well. The third element is, as Noman said, that we will be excluding the sports levy that we pay at 2.5%. The effective tax rate is actually coming to around 10% and not 15%.
The question on whether we can see a lower, basically, the draft executive regulations have a point in relation to whether your tangible fixed assets for your foreign operations are less than EUR 50 million, so then you can benefit for a five-year period. We are looking at that, various scenarios, and it may bring it down to much lower levels, Rahul, from a tax perspective. As these are draft regulations, we are doing the work, and hopefully we can come to some solution there. It can go similar to the levels in 2023 and 2024 as well. Coming on to the second question in relation to cost of risk, yes, I mean, we are still guiding towards a net cost of risk of around 80-100 basis points.
Recoveries are going stronger, but yes, we need to be mindful of making sure that we continue with a conservative approach, provide provisions, and then sometimes the recoveries are a bit lumpy, but overall, we are guiding towards 80-100 basis points. In relation to the oil price, Joseph, any thoughts on? Yeah. I guess the thing is that from our perspective, as you mentioned, LNG lesser impact, we are not seeing any material concerns there at this stage from a provisioning perspective. We believe we will continue with our conservative approach on gross provisions, and we will be in the right range.
I think regarding the effect of the lower oil prices, I mean, the main entity is Qatar Energy, which I would say is a state-owned enterprise, and it has its long-term contracts primarily, which are linked to oil prices, but I think the direct impact is very limited. Similarly, the other one is Qatar Airways, another big entity. Obviously, cost of fuel will be beneficial to them, if anything. Again, from a risk perspective, we really do not see any change in our cost risk. The rest of the portfolio is really, as I said, much more linked to the overall economy. It is in real estate, it is across different sectors. We think that direct impacts are very limited.
Because the indirect effects coming from the overall economy are, I think, relatively limited because I think Qatar as an overall economy is not that impacted currently by the lower oil prices. I think Qatar will continue to run a budget surplus and a current account surplus. I think Saudi is the one with a significant impact on their budget from the lower oil price. I think Qatar is relatively insulated.
Rahul, your third question was on the margin in Turkey. In Turkey, if you see, they have actually increased some lending. Their lending book has grown year-on-year on Turkish lira terms, and they have been able to sort of maintain the asset yield at the same level as last year.
The issue is, if you remember that CBRT increased rate last year up to 50%, almost 49%, and the trend was that it was going to come down to 42% and 40% by end of first quarter. It did not happen because of the political turmoil, and they increased the CBRT rate to 46.5% again. That had a cost of funding impact in Turkey, and that is what the result of their net margin coming down from 4.7% - 2.7% in the first quarter.
Understood. J ust one quick follow-up on the tax regulation. Is there a timeline that we know of when we know when the new regulations will be known?
I mean, we are expecting the executive regulations to be finalized in 2-3 months, Rahul.
Okay. Perfect. Okay. Thank you. Thanks so much.
I have a question on the screen from Rohit Raj. In this quarter, there is no charge for LTIP. Does this quarter represent a BAU in terms of cost-to-income ratio? When does the majority of LTIP expire, and what happens to the treasury shares when LTIP expires? I'll just answer the first one. The share price did move from 4.3% end of last year to 4.2% at the end of first quarter. As a result, there's a very nominal charge on the IFRS 2 impact on the staff cost compared to QAR 91 million charge last year. There is an impact in the cost-to-income ratio, but it's a marginal impact. In terms of the majority of LTIP expires, what happens to the treasury shares when LTIP expires?
Now, if we unwind the scheme, what happens is that the entire reduction of the LTIP from our capital will come back to the capital. That is what we have indicated from the beginning. There is some process that is going on at the moment. We are not going to extend the LTIP scheme. We are trying to manage it down. We have another question from Bijoy. Please unmute yourself and go ahead.
Thank you, gentlemen, for the call. I have a question on your cost of deposits. Your cost of deposits have been high versus when I check the overall market, in the market, the deposit rates have come down, and other banks have also reported a reduction. Your cost of deposit remains quite high. Any particular reason for that?
Yeah. One of the main reasons why the cost of funding has gone up is, if you remember, in 2018, 2019, we had our issuances, which were funding at around 2%, 2.25%. When we actually go for the reissuance of those, when it matures, those are coming at around 5%-5.5% at the moment. That is why we are currently watching in terms of our next issuance, in terms of the pricing. That is something that we are currently assessing.
Understood. Also, your capital adequacy has improved. If you can help me understand, is it majorly because of the risk-weighted assets?
I mean, the capital adequacy ratio at the end of 2024 and start of Q1 2024 was on the lower side. What we have done is, obviously, over the year, we have built up the profits, and that has resulted in the increase in the healthy capital adequacy ratio. It's just the building up of the profits.
Understood. Just one final question on Turkey. How do you see the market? Any outlook would be helpful on Turkey?
Maybe, Ozan , you can give your views on the outlook in Turkey for the.
Of course, Mr. Joseph, thank you for the question. Actually, the first quarter was quite stable in terms of the economic activity in the country. Central Bank started the rate declines starting from December 2024, and then the rates were declined from 50% - 42.5%. During March , there was a turmoil with the arrest of the mayor of Istanbul, so there was a likely volatility in the market. The CBRT took an immediate action and increased the interest rates, as Mr. Farhan mentioned previously on the previous question. Now interest rates increased. There are still regulations on the growth caps and the CBRT, the central bank trying to manage the inflation. Currency increased from the 36.5 levels to 38 levels in terms of the U.S. dollar-Turkish lira parity. It is now stable.
In half an hour time, CBRT will make the April decision on the interest rate. Expectation of the market is to keep it stable. Economic activity slowed down again because of the increase in the interest rate for the last one month. It also affected the cost of deposit, obviously. They have a pressure on the net interest margins. Overall, the expectation of this year, the policy rate is to decrease to 35% levels. After the April meeting, I think the country will continue its monetary policy as expected and with the plan. That's basically more or less the economic outlook for Turkey today. If you have any further questions, happy to answer.
Thank you, Ozan . We have a question from Rahul Bajaj. Rahul, please unmute yourself. Go ahead.
Hi. Thanks for taking a follow-up question for me. This one is on loan growth. Very strong loan growth, especially in the wholesale segment coming in one queue. Just wanted to get more clarity on this. Where is this coming from? To what extent this growth is LNG-related? I remember at the start of the year, you've alluded to 2-2.5% growth outlook, loan growth outlook for the full year. What would be the outlook now with very strong one queue? Thank you.
I would say that we still maintain our outlook. I mean, we see ups and downs, particularly in government and public sector borrowing, depending on the release of their budget reallocation, etc. We would say there was maybe a jump in government and public sector in the first quarter, but we would anticipate that the overall year will stick to the 2-3% loan growth in line with GDP.
Understood. Understood. Thank you.
We have a question from Aybek Islamov . Please go ahead.
Yeah. Thank you. Just one question from me. Regarding Turkey, can you remind us what is the carrying value of your Turkish subsidiary on your balance sheet as of Q1 2025? Just one question. Thank you.
We have the original investment is equal to about QAR 4 billion. In the foreign currency translation reserve, we carry a balance of about QAR 2.6 billion. Net, about QAR 1.4 billion.
On the balance sheet, it is net.
Net.
Yes, of these two figures. Effectively, the original value is 4.1, and then the currency depreciation has been reflected through the foreign currency translation reserve. They are two separate items.
Thank you.
We have a question from Andy. Sorry if I missed this, but can you give some color on the loan book growth? Which sector client categories were strong, and was there a portion of government repayment netted off again this quarter?
I mean, as we mentioned, the loan growth is coming from two folds. One is that we saw some increase in the public sector borrowings on the wholesale side. We also saw increase on the retail side. Our retail book increased by 11.9% year-on-year. Still, when you look at the total loan book, our retail is around 15% of the total loans to customers, and we are aiming to increase it further. As Joseph mentioned, on the wholesale side, we will still target loan growth. The outlook would be in line with GDP, around 2%-2.5%, 3% as the GDP grows. We will aim for that kind of growth at the present.
Okay. We have another question from Alina Asifa. Thank you for the call and taking my question. I see your NPL decline on 1 Q 2025. As a proportion of your loan book, how much there are stage two loans?
On the stage two loans at Q1 2024, our NPL stage 2, sorry, the stage 2 loans are around 20%, and we have decreased it to 19% at the end of the first quarter of 2025. There is a decrease. What we are really aiming for is to further decrease it down to a range of 15%-16% over the course of the year.
The other question on your was the NPL decline in first quarter. The absolute NPL number remains the same. It's because of the denominator effect where the lending has increased. That's why you see a marginal drop in our NPL ratio. We don't see any other questions. If anyone has any questions, please go ahead. If not, I would kindly request Joseph to give the closing remarks.
Thank you, everyone, for joining us. Again, I think, as I would reiterate, we have a clear strategy in place. The key elements I believe will be Turkey's turnaround, which we're implementing, looking at some of these ways to mitigate the tax effect. I think this is very important in terms of absolute impact. Just continuing, as I said before, we are not chasing loan growth for loan growth's sake. We believe in the quality. We spent the last eight years cleaning up some legacy portfolios. We're coming to the end of that journey in the next two years. We are therefore very clear on our loan growth strategy. Quality is always important. I think those are the key messages. I believe our retail business continues to grow well, providing necessary diversification.
We continue seeing that as a strong growth opportunity across a number of new business lines which we have created over the last few years, like wealth management, brokerage, and of course, remittances. Overall, UAB and NBO will continue to perform well. We see a positive outlook for both these entities. That is the overall outlook for the rest of the year. Thank you very much for joining us today. As always, if there are any questions, please feel free to reach out to our team. Noman and Farhan, and of course, myself, are always available. Thank you very much.
Thank you.