Good afternoon ladies and gentlemen, I'm Mohamed Farhan, Head of Investor Relations, and I welcome you all to the Commercial Bank of Qatar first half 2025 results call. Kindly note that we shifted the investor call today by approximately 35 minutes to start at 01:35 P.M. local time since we were making an announcement to the Qatar Stock Exchange earlier, the details of which will be discussed during the call. On this call I have on to my left Joseph Abraham, who is the Group Chief Executive Officer of Commercial Bank of Qatar, and on to 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 question and answers.
Now I request everybody to kindly please put yourself on mute, and I now hand over to Joseph Abraham.
Thank you everyone for joining us today, and once again, sincere apologies for the delay in starting the call by six minutes and the revised timeline. This is due to some last minute glitches and approvals that were needed to make the announcement on the stock market. The announcement has also been sent to all of you, but basically it's outlining that I will be retiring from the bank as of August 1 after nine years. I've been with the bank since June 2016, and my replacement will be a gentleman called Stephen Moss, who is a very experienced banker, ex-HSBC, and he'll be taking over from that date after a very short handover period for the first week of August. That was the announcement.
I suggest that we go through the financials now, and if there are any other questions on the financials or any other matter, we can take them at the end. I'll hand over to Noman, who's our CFO, who will take you through the financials. I would just say that the financials reflect another quarter of execution of our strategy and the growth in the business, and Noman will take you through the details. Thank you.
Getting into the results for the first half of 2025, I'll focus mainly on Slide 8, which shows our consolidated financial highlights of the group both on a reported basis and after excluding the long term incentive scheme impacts. Overall, the group reported a net profit below Pillar 2 tax of QAR 1,374 million for the first six months of 2025 as compared to QAR 1,571 million for the first half of 2024. The variance includes a loss of QAR 107 million from Alternativeb ank in first half of 2025 and the impact of the long term incentive scheme related charges of QAR 36 million.
If we exclude the impact of the long term incentive scheme and if Alternativeb ank's performance was similar to the first half of the prior year, net profit before Pillar 2 tax would have been at the same level as the prior year, demonstrating a strong operating income from our core domestic business. Further, due to the likely implementation of the global minimum tax of 15%, a tax charge of QAR 112.9 million was also recorded in the first half of 2025. Overall, this resulted in a decrease in reported profit after tax to QAR 1,261.4 million. I would like to highlight that the group may benefit from certain reliefs from the executive tax relief regulations which are not currently enacted. Once the executive regulations are enacted and if the reliefs are applicable to the group, this may result in a reversal of the Pillar 2 tax charge.
In relation to our net operating income, our reported operating income is lower by 9.8% year on year. This is driven primarily by contraction in net interest income, which was slightly offset by higher fee and commission income and other income. This also included a one-off loss on a sale of repossessed property in Turkey, which negatively impacted our net operating income number. If you deep dive into the numbers, our NII decreased year on year. Firstly, in relation to interest income, since 3Q24 there have been three rate cuts resulting in a 115 basis point reduction in rates, which have impacted our lending book and reduced our interest income. Secondly, on interest expense, there has been an increase due to stiff competition on domestic deposits as well as refinancing of some of our medium term debt issuances, which were previously at a lower rate.
The NII was also impacted by the increase in interest in suspense of QAR 83 million due to two names which were downgraded in the last quarter of 2024. As a result, our net interest margin stood at 2.2%. Moving on to fees and other income, the group's core net fee and commission based income continued to grow with an improvement of 5% year on year, supported by retail banking fees including cards, wealth management, and remittances, and wholesale banking fees, in particular cash management and payments. Further, there was an increase in the group's income from investment and securities of approximately 20%. 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 increased operating costs from a Turkish subsidiary, including certain rightsizing initiatives.
Further, the lower operating expenses in the first half of last year were also attributable to decreased staff-related long term incentive cost. If you were able to exclude the long term incentive cost impact on the operating cost, the year on year increase is 3.9%. As a result, the group's reported cost-to-income ratio reached 30.6%. At domestic level, the cost-to-income ratio on a reported basis now is 25.6%, supported by investment in certain key identified areas. Alternativeb ank reported a cost-to-income ratio of 101.9% compared to 78.9% in the same period in 2024. Moving on to the net provisions, they decreased to QAR 295.3 million for first half of 2025 from QAR 426.9 million in the same period in 2024. In relation to provisions to loans and advances to customers, our gross provisions remained consistent with the previous years and our recoveries were also stronger at QAR 127.2 million for the period.
Therefore, a net cost of risk on loans was 50 basis points, whereas the gross cost of risk on loans was 77 basis points for the first six months of this year. Aligning with our conservative approach and provisioning, we expect at consolidated level that the gross cost of risk will be between 115 to 130 basis points for the year and the net cost of risk between 80 to 100 basis points for 2025. At 30 June 2025, the NPL ratio decreased to 5.5% from 6.1% at the year end, while the loan coverage ratio including ECL stood at 87.9%. Moving on to the balance sheet, the total assets were up by 13.2% year on year to QAR 182.1 billion. Loans and advances to customers increased to QAR 103.8 billion, which includes an increase in acceptances, which are trade related items.
If we exclude the increase of in acceptance, the underlying loan growth is approximately 7%. This is driven by strong growth in wholesale lending, both government and public sector as well as corporates. Further, retail lending also contributed strongly to the growth with 7% growth year on year. Customer deposits increased by 8.2% to QAR 83.5 billion at 30 June 2025. This was mainly driven by time deposits as well as current and call deposits. Further, we continue to grow our low cost deposits which increased by 10.2% year on year, reflecting our efforts to diversify funding sources and strengthen balance sheet resilience. Our capital remains strong. Our CET1 ratio and capital adequacy ratio stood at 12.5% and 17.2% respectively. On our associates, NBO and UAB continue to deliver better performance. Commercial Bank of Qatar is working closely with both of these entities and the execution of their strategies.
Alternativeb ank reported a net loss of QAR 107 million for first half of 2025 compared to a net loss of QAR 2.9 million for the same period in 2024. Although there is an improvement in performance with total fees and other income, the results were mainly impacted by lower interest income due to a volatile environment as well as higher operating expenses primarily due to certain rightsizing initiatives including FTE reductions and more focus on digital banking. Further, the results were also impacted by a one-off loss on a repossessed property disposal in Turkey. Overall, the impact of hyperinflation accounting is QAR 207 million for the six months ended 30 June 2025 across various lines. Commercial Bank of Qatar will continue to report under IAS 29 till Turkey continues to be classified as a hyperinflationary economy. Overall, Alternativeb ank at a consolidated level represents 3.9% of our total balance sheet size.
That's an overall summary of results. Happy to take any questions.
Thank you, Noman. We can now move on to question and answers. If you have any questions, please raise your hand, or you can ask your questions in the question and answer box. We have a question from Rahul Bajaj. Please unmute yourself and go ahead.
Hey, this is Rahul Bajaj from Citi. Thanks for taking my question. Firstly Joseph, all the best for your endeavors going forward. It was lovely to interact with you all these years. I have three questions to begin with. The first one is on the five year strategy which you laid out. The strategy was due to expire next year if I remember correctly. Now with the new CEO coming in, how should we think about the strategy? Does that still stand? Are you still targeting those metrics for 2026 or should we and shareholders expect the bank to come out with a revised plan and revised strategy after the arrival of the new CEO? That’s kind of my first question. My second question is on the executive regulation which would lower the tax outgo for C B Q.
Do you have any visibility on the timing of this executive regulation? When should we expect clarity on this particular subject? In case the regulations are enacted, would the tax outgo go to 0%—back to 0% kind of forever for the foreseeable future—or would it go down from the current rate to some other kind of lower rate? How should we think about that? My third and final question is on the provisioning. I see that you maintained your 2025 cost of risk, net cost of risk guidance of 80 to 100 basis points, despite the fact that first half has been quite strong. May I just try to understand what has driven this kind of level of conservatism in terms of cost surplus guidance for the year? Are you expecting a significant pickup in provisioning as we go ahead in the second half of the year?
A related topic here, historically I remember C B Q used to have fourth quarter, which used to be kind of a heavy provisioning quarter because you would do a full analysis of your book in the fourth quarter. Should we expect a similar trend now or will it be more normalized second half versus first half? Those are my three questions. Thank you.
Let me take the first part and some parts of the others. First of all, Rahul, thank you for your kind wishes. Greatly appreciate it. It's been a pleasure interacting with yourself and with the rest of the investor community. I think the aim at Commercial Bank of Qatar has been to build an atmosphere of trust and transparency on our figures and our strategy. That leads me to the strategy piece. The strategy is approved by the Board of Directors and obviously it's been in place now for almost nine, for nine years. Now the 10th year is coming to the finalization. I would say that it's an institutional process and therefore, you know, many of the components of that strategy would I believe remain unchanged because the whole, but the whole endeavor has been to build institutional resilience and strength and clarity. It doesn't depend on an individual.
I think that's very important. We have a strong team at the ExCo level who know their businesses and executing well. There's clarity at all levels of the bank on what needs to be done. Fundamentally I would say that will continue I think post 2026. I would say of course any new CEO coming in could make some changes, but I would frankly expect it to be, you know, more or less at the edges. We have a clear strategy for retail, a clear strategy for wholesale, clear strategy for our international subsidiaries and associates. I think a lot of that will continue. That would be my thoughts on that. As I said, we have to make an institution not dependent on an individual. I think that's how you build institutional strength and I think that's what we have at Commercial Bank.
The second piece I would say is around the, on the tax. Maybe you can talk about it.
Noman and then.
Hi Rahul, hope you're well. Thanks for your questions. On the draft executive regulations, we did make some inquiry and we think they will be coming out, but still the timing is not certain. Hopefully it can be in the next two, three, four months, but we don't have any firm date which is published outside. We'll keep an eye on it. In relation to your question whether the tax will go to 0%. Obviously, you know it's 15% and then it is offset by a 2.5% sports levy. If you are able to take the benefit of the exemption, yes, it will be closer to that two and a half, 3%. I think this, which is the exact existing level. It will go to like 2.5-3% due to the sports levy.
Just for clarity for everyone, I think the executive regulation has not come out yet and the whole BEPS and the Pillar 2 tax directive have also come under the scrutiny of Donald Trump and the U.S. and they've got some exemptions. I think that's also a moving piece of work. We don't know how it's going to be done at the international level plus at the local level where there'll be how it will be executed and the timing of that. I think there are lots of moving parts there. That said, I think the key point is that that exemption requires your fixed assets to be less than EUR50 million. That's the exemption.
We are taking the necessary measures to make sure that we are in that space so that if and when it comes out we would try and get the benefit of that in May, whether this year or next year. I think that's a piece of work that is ongoing anyway and will be executed anyway. That would be our guidance on that subject.
The third question was on the provisioning.
Yeah, on the provisioning, Rahul. I think as you've seen, like the first two quarters, we have been conservative on our gross provisioning, and we will continue that journey. The thing is, obviously, there is some legacy book provision which will come in, and the reason why the Q4 provisions have a slight uptick is that when the central bank does an annual review, which is reviewed by and approved by the central bank, there is sometimes discussion on names. Overall, I think our guidance remains that, you know, we will be again conservative and trying to be around our guidance from a provisioning perspective on the gross side.
The key point here is that, as you said rightly, a lot of it is back ended to this last quarter because that's when we finalized the discussions with the central bank. Our guidance for 2026, as I said, our legacy portfolio, which is the pre-2016, we have taken a lot of provisions, almost QAR 15 billion over the last nine years to clean up that book. As I said many times, the new book is probably running at 40 to 50 basis points maximum. We expect that to be cleaned up by either 2026 or 2027. You can already see the cost of risk coming down. I would say maximum you'd have a one year risk on that by 2026, sort of 2026 will be 2027.
The fundamental principle that this bank will have a cost of risk running at 50 basis points still remains very clear and core because the fundamental origination and risk culture has now ensured that post-2016 we have originated good quality loans. I think that remains very clear. It's just another one or two years more of this and then you'll see the benefits in the lower cost of risk, which will then become the ongoing standard.
Greatly.
Thank you so much.
We have a question from Ashwath. Please unmute yourself and go ahead, Ashwath.
Yeah, hi, sorry, I have a couple of questions as well and thank you for the presentation. The first is on the loans. I see that the increase has largely been due to the acceptances. Is that something that you think will be sticky towards the end of the year, or do you think that could unwind? Basically, I'm trying to understand if there could be upside risks to your loan guidance or the comments around loans that you provided earlier during the year. The second I think is probably already asked before, but just to touch on it again. In terms of the cost of risk guidance for the year, the net guidance was between 80 to 100 basis points, but your first half was well below that. I know that you've mentioned that you expected or it's largely driven by good recoveries.
Is there expectation that those recoveries would slow down towards the second half and that's why you still maintain that 80- 100 range? Do you think there could be some downside risks to that guidance, that portion of your guidance? The last question was on the taxes. Just to clarify, if there is potentially an exemption, would that fully lead to a reversal of the income tax provisions, or do you plan to potentially use some of that reversals to beef up your coverage buffers? Those are the questions I have.
I think on the loan growth, you're right. I think the acceptances tend to boost the level.
I would say if you were.
To take out the acceptances, our level of loan growth is 7% and in that there's an element of the government which can also move up or down. The underlying ex-government, ex-acceptance is about 3.5% and we have guided for the year to be about 2.5%- 3%. We stay with that. The government funding and the acceptances can, I would say, provide a bit of higher figures. You should be looking at the underlying figure, which I said is not 3.5% too. We could see we have a pipeline, so we are likely to probably go above that because we have a good pipeline of non-government and non-acceptance related loan growth. I would say that there's probably some more scope to add another 2% in that scope by the year end.
In terms of the risk provision, the risk, we want to always get a coverage to that 75% at least. We will move towards that. You might see some movements up and down. That's primarily due to, at the end of the, when we write off a loan from our stage three, that requires QCB approval, that usually is 100% provided. That drops the average and then we build it up back again over the next year or so.
Our goal is to keep it.
At 75% coverage, and that's why we maintain our cost of risk. Recoveries, I think, are always a bit hit or miss in the sense that the timing. We have a strong litigation team. I'd say we're very robust now. Our recoveries have improved significantly. The good thing with real estate assets is that you have some, you know, real collateral there. I would say that our recoveries are very strong and provide support to our net cost of risk. The timing of it can sometimes be varying depending on courts, depending on auctions, etc. That's why I think it's better to focus on the gross cost of risk rather than the net cost of risk. We will endeavor to, of course, maximize recoveries every year, but the timing can be a bit chancy sometimes.
Third question is on the taxes.
Think on the taxes as we mentioned. We will see when the draft regulations are enacted and if we are able to benefit from the relief here, and then yes, there will be a reduction in the tax charge, most of it. Obviously, the provisioning and tax is a bit different, obviously, from, we will be continuing with our conservative approach on provisions and make sure we continue to provide provisions on our loans in accordance with the QCB guidance and as agreed with the auditors.
We have a question on the question inbox. Rob Skipper from Ashmore. He gives his best to Joseph on the loan growth higher than other banks. What opportunities are you go for after presumably pricing is weak in order to grow like this? Question number 2, stage 2 loans. What is your outlook for second half 2025 by way of ratio? Do you expect further improvements? Third point, talk about the decision of buyback versus dividend. What are your weighing ups?
Okay Rob, if I may go for the first question again, I think my previous explanation probably showed you the granularity in the loan growth. Yes, it looks high on paper because of the acceptances, but once you net it out and ex government, I think you would see that. Only 3.5% which is one line, because as I said, fundamentally we are not chasing loan growth for the sake of loan growth. We are ensuring that we have good quality loans. This is really important because, as I said, we spent the last nine years cleaning up our legacy book. We're not going to go down that route again. Yes, you chase, so this is good quality loan growth.
We're quite happy with 3% or.
5% if the quality loans are out there and that's where we will be. We are not chasing loan growth at the cost of pricing. Yes, there is, let's say, some pricing competition in the market and our strategy has been that where someone is trying to poach our customer, then we will match or manage that or try and give a concession, but not across the general portfolio, try and capture new business with that strategy. That's how we'll protect and grow our business in a, I'd say, in a proper manner in terms of quality of loans and protect our business without.
Chasing low yielding loans
On stage two, Rob.
The stage two percentage was down, I think, around 18%. It was around 20% at the year end. It's going in the right direction. We will continue to bring it down. We wish that we will work towards making it around 15 to 16%, but let's see where we end on the year. It's going in the downward direction. We aim to be around 15, 16%, maybe this year or in 12 months' time. That's the direction we are headed towards.
The third question is on the addition of buyback process dividends.
I think the way we've looked at it as we've mentioned in our release is that the buyback is, you know, this is a standard international practice also, you know, and it's a way of enhancing shareholder returns and earnings per share, and it has the benefit in the longer term. The second piece was, we have that in place so that will benefit our shareholders. The second piece is, as I said, we have a pipeline of loans coming through and therefore we felt that it's important to keep our capital for that. I keep the powder ready for that. Overall, we therefore took the decision, the board took the decision, that we will not issue an interim at this stage, which is in line with last year.
Also, we have another question from Rahul Bajaj. Rahul, please go ahead.
Thanks for taking my follow up questions. I have a couple of questions actually. The first one is on the buyback topic which was just being discussed. As I understand there's no interest dividend, but will this buyback you think have an impact on the full year, year end dividend as well, or that is not something that has been discussed at this stage. That's one. Secondly, on the acceptances, I understand the core sort of loan growth trend which Joseph kindly explained, but on the acceptances which we've seen come in this quarter, are you expecting an unwind in the next quarter or so? How should we think about the trend rate of acceptances over the next couple of quarters?
Maybe one final bit since I'm asking is on the international segment, a bank basically, margins Q2 margins have gone up, looks like compared to Q1, NII is quite higher, quite high. Just wanted to understand, that looks counterintuitive since rates in Turkey went up actually in Q2, so cost of funding would have gone up I would have assumed. How were you able to increase margins in Q2 versus Q1 and how should we think about the trend going forward there as rates come down? Thank you.
Thank you.
On the first question on the buyback, yes, the buyback announcement is obviously subject to regulatory approval. Once it is operationalized, from a capital planning perspective, we have announced it, and this is the board's decision. From a dividend perspective, we did not have the intention to reduce it. From a capital planning perspective, we can manage both. At the end of the day, that is the decision of the board. From an acceptances perspective, yes, that is why we are flagging that it's better to look at the movement, the increase with the underlying growth. Excluding the acceptances, some of these are, as you know, short term in nature. We won't see a significant drop all of a sudden. Some might be replaced, so there might be some movement in balances but not significant variation.
Yeah, I would say two things on that. One is the acceptances. Maybe you won't see much of an increase on that. Current levels, I think some of them are 6, 9, 12 months. I think you might not see a decrease. I don't think we're probably at our maximum level of acceptance at this stage. That would be what I would factor into any calculations you may have with regard to the dividend and the share buyback. I don't think there's any there. I don't think there's a plan to any linkage between the two. Of course, dividends are finally dependent on the profits that we are generating for the full year and the board decision on payout. I would say at this stage there's no linkage or any effect on the final dividend from our buyback plans.
On the third question with regard to Alternativeb ank margin, you're right, the margin quarter on quarter improved from 2.7%- 3.2%. The good thing is, if you look at the Turkey balance sheet, they have been able to grow their loan book from TRY 40 billion to about TRY 64 billion year on year. That means on Qatari Riyal, about QAR 2 billion growth. While the interest rate at the yield gross level has been sort of maintained and sort of improved slightly, the cost of funding that actually increased was far lesser than the increase in the yield. That's why you see a slight pickup in the net interest margin in terms of the cost of funding. You know that the policy rate with regard to the CBRT was increased to 46% last year, which came down to 42.5% towards the end of last year.
Due to the political situation, I think they increased the rate back to 46%. That has actually kept the interest cost of funding at a higher rate and that has not given the real benefit of those loan growth that they have booked in the last six months.
If I understand correctly, we should expect as cost of funding goes down, as rates come down, names to continue to expand from these levels. Is that a fair assumption?
Yes, that's right. You will see some improvements coming from Turkey on that.
Perfect.
Clear. Thank you.
We have another question from Ashwath. Please go ahead.
Yeah, hi, thank you. Just following on from the last question. The NII's were higher for a bank, but then I think on the bottom line the impact was actually a drag on the group's overall net income. Just wanted to understand whether that was mainly due to higher hyperinflation costs or were there any other pressures in terms of OpEx or credit costs for the bank for the Turkish subsidiary?
Yeah, I think one of the, as I mentioned, there was a one-off item of a repossessed property disposal around more than QAR 40 million. I think that was the one-off item which also impacted the results. On the operating cost side, as I said, there were some right sizing initiatives and redundancy costs. Those are also there, and some investments in digital banking. The main thing was this one-off repossessed property, which will hopefully not be repeated in the second half.
Just to add to that, with the sale of the property, they have released some over TRY 1 billion of Turkish lira cash to the company. That's going to generate some additional incremental return in the next future period.
Okay, very clear. Thank you.
We have no more questions. I would like to invite Joseph Abraham for any closing remarks, please, then we can close the call.
Thank you again for joining us. I think this has been now almost nine years where we've had these investor calls and I think the institution aim is always to try and be very transparent, give forward guidance as far as possible and to, you know, when we achieve it, great. Even when we don't achieve it, we try and do the figures and I expect that culture of transparency to continue with the team. On behalf of, at least on myself and the team, I'd like to thank all of you and I do request your cooperation and support to the new CEO who will obviously take the bank forward to even greater and reap the benefits of, I think, all the work that has been done to reshape and transform the bank into, I think, a very modern and well run institution. If I may say, I'm biased.
That's my opinion now, so thank you again for that.