Good morning. Good afternoon, everyone, and thank you for joining us today. This is Janany Vamadeva from Arqaam Capital, and I am pleased to welcome you to Doha Bank's fourth quarter full year 2024 earnings webcast. Without further ado, I will now turn the call over to the Group Deputy CEO, who will share some insights, and then we will go straight to Q&A.
Over to you.
Okay. Thank you very much. Good afternoon, and thank you on behalf of Sheikh Abdulrahman Al-Thani, our Group CEO. I would like to thank you for joining us on Doha Bank 2024 investor results call. I am Dimitris Kokosioulis. I am the Deputy CEO, and I have with me our CFO, Mr. Aman, our Chief Treasury Investment Officer, Mr. Fawad, and our Chief Risk Officer, Mr. Salman. We are going to give you some key highlights of what has happened in 2024, and then I will hand it over to our CFO to share some financial performance highlights for the year. Then we will open it up for the Q&A session. 2024 was a very key, critical, pivotal year for our transformation. As you all know, we are going through a big transformation program called Himma Transformation.
Transformation, it has a big idea of the way we operate and of the way we do things at Doha Bank. It involves all processes, business unit lines, systems, and people. Over the past year, we have achieved transformative milestones across key areas, which were being underpinned by innovation, operational efficiency, and a commitment to sustainable growth. Now, allow me to share some of the highlights of our journey in 2024. Himma Transformation was a full transformations program. Can you please mute yourself? Okay. Thank you. Over the past year, Himma Transformation, as we said, is a full transformation program, and actually it has 87 initiatives. We have actually been able to start and kick off 78, which means that 90% of the total transformation program has been kicked off.
The total transformation program has close to 173 total deliverables, and we have been able, in 2024, to close and complete 108, which is close to 62% completion. So we are well on our way to finalize and complete the transformation, and 2025 is going to be also another critical year for this process. In terms of governance and organizational strength, as we have said also last time, we have completed critical appointments, including all the C-suite. So we have the key leaders, the chiefs that are going to drive this transformation. Under corporate initiatives, we have been able to establish a corporate remediation unit with a robust database for portfolio oversight. We have been able to revamp the corporate credit process, reducing expires backlog.
On operational efficiency and savings, we have been able to identify close to QAR 110 million in annualized savings, out of which QAR 90 million have already been captured. We are using these savings in order to be able to reinvest back in the bank as part of the transformation process with new systems, et cetera. We have been able to streamline operations and rationalize our network. We have closed and exited the three non-strategic representative offices, two international branches, and domestically, we have closed five branches. So we reduced our network from 21 branches down to 16. Out of which, 14 is conventional. One is a corporate service center, and one is corporate office for our corporate clients. And it's a corporate branch. We have a plan to even further reduce this number of branches we have.
Our digital transformation program is paying off, and is allowing us to be able to absorb all these transactions on our digital channels so we can reduce physical presence. We have been able to renegotiate major contracts, including on our cards business. As we have already said, we have signed one of the best and the biggest deals with Mastercard. We have renegotiated contracts relating to insurance and telecom agreements, contributing to cost optimization and efficiencies. The key other pillar is innovation and product leadership. We have been able to be doing some great things in terms of innovation and product delivery.
We were the first bank in Qatar to launch products including Visa Commercial Pay, which is a virtual card, a corporate card for our corporate clients, which we were the first bank in CEMEA region, Central Eastern Europe, Middle East, and Africa, actually, to offer this using a mobile module as well. We were the first bank to introduce Mastercard Move real-time payments, cross-border foreign currency payments in more than 30 corridors, including SEPA, Africa, Asia Pacific. We were the first bank to work with the Central Bank to deliver the Fawran payment initiatives, instant payments, actually. The first bank to introduce Himyan cards, which is a local debit and prepaid card with benefits. On the part of the digital transformation, as I have said before, we have invested in a full revamp of our retail mobile app. More than 160 features have been face lifted.
We have added more than 50 new features. We have seen an increase of subscriptions by more than 44% and increase of active users of more than 22%. More than QAR 5 billion worth of transactions have been processed through our mobile app. We are very optimistic that utilizing this tool, this digital channel, will enable us to reduce further branches and also have everything on the mobile. Some key features that we have launched include everything from statement, salary statement, bank account statement, top up of loans, new loans. We also recently obtained the approval from QCB to go live with digital onboarding. So we will be able to add new clients using mobile app.
Actually, the good news is also that on Google Play and App Store, we are ranked as number one application in the country, which solidifies our aspiration to be leading innovation in the banking industry. Also, we have been able to recently launch a full corporate mobile app for our corporate clients with 65 features. We are one of the few banks in the country to offer these digital capabilities to our corporate clients. So with the Visa Commercial Pay, the virtual corporate card I mentioned before, enhancing our capabilities on our corporate online platform, we are offering a full digital service capabilities to our corporate clients, and this is very much appreciated.
Also, we have plans to launch a new super application in 2025 that will be not a typical banking app, but will give our clients the opportunity to facilitate all their needs throughout this application, which includes ticketing, et cetera. This digital transformation journey has been recognized globally. Global Finance gave us the Best Retail Banking Digital Transformation Award in 2024. We have been named by Finovate as the bank with excellence in digital banking. We have also launched the Fintech and Innovation Hub, where we are working with Fintechs in the market and is part of also the company's vision for 2030. In terms of process improvements, we have been able to restructure account opening processes, centralize operational activity, and reducing turnaround time to open a new personal loan, from three days down to one day.
This has been actually, we are seeing some significant customer satisfaction out of this process improvements. In terms of another biggest significant event is the funding achievements we have done. We have been successfully issued a $ 500 million EMTN bond at a competitive rate of 5.25%, which was four times oversubscribed, reflecting the strong market confidence in the bank. We have increased funding duration and stabilizing key ratios like LDR and USD LCR for a healthier funding mix. We also introduced the first green repo. Moving to sustainability and ESG leadership and the implementation, we actually were able to complete phase one of our ESG strategy implementation, aligning with the Qatar National Vision of 2030 and with the Qatar Central Bank guidelines.
We have also been able to initiate phase II of this project to address climate risks, integrating this into our risk appetite and positioning the bank as a leader in sustainable finance. Also, as part of our partnership with Mastercard, we have been joining their Priceless Planet Coalition program and the Mastercard Carbon Calculator program. We have been able to partner with GORD to drive ESG transformation and enhance brand health. Also, as part of our efficiency and also the move towards establishing strategic partnerships, we have actively engaged in high-profile sponsorships like the HH The Amir's Sword International Equestrian Festival, Doha Marathon by Ooredoo, and Qatar ExxonMobil Open.
Now, with all further view, I would like to give the role to [inaudible], to our CFO, to talk more about the highlights of the financial achievements in 2024, and then we can come back for a Q&A session and take it from there.
Aman.
Thank you, Dimitris. This is Aman, the CFO of the bank. I will now take you through the bank's performance for the financial year 2024. Overall, a very positive year, as Dimitris explained, on the backdrop of significant transformation as well as business growth. Focusing on the balance sheet first, the total assets grew by around 8.9% year-on-year. Combination of both loans as well as investment growth. The loan growth was around 5.1%, coming primarily from the public and the GRE sector. The guidance for loan growth in 2025 will be similar, in the range of 5%-6%. The investment portfolio grew by about 12.6%, investments mainly coming from investment high-quality liquid assets. The customer deposits decreased marginally by 1.4%.
However, the overall funding and liquidity remains strong, and our overall funding base increased by around QAR 2.7 billion. We had a very successful issuance of EMTN during Q1 of 2024 amounting to around $500 million. The LDR remained in check. We were able to bring it in line with the regulatory requirement of 100%, from 104 last year to 98.25% this year. The LCR, which is a measure of short-term liquidity, also remained solid around 167.5% as of December. The capital remains strong. Our CET1 ratio being 13.3% and overall CAR around 19.6%. Our guidance based on the expected growth that the capital adequacy ratio will remain in a range of 19.25%-19.5%. Coming to the income statement, the bank achieved a profit of around QAR 851 million , which shows a growth of 10.7% year-on-year.
The net interest income declined by around 5.9% year-on-year. The NIM was around 1.92%, and the guidance for NIM in 2025 is 185 basis points ±5 basis points. The total cost of the bank increased by 4.7%, which resulted in the cost of income ratio being 38.1%. The guidance for cost of income ratio in the coming year is going to be 37%-38%. The loan loss impairment for the year was around QAR 702 million as compared to QAR 892 million last year, showing a decline. The cost of risk was around 118 basis points versus 154 basis points last year. This is a positive development with respect to the cost of risk. The guidance for cost of risk for the coming year is around 120 basis points-130 basis points.
The NPLs remain flattish as compared to Q3, around 7.43%, and marginally increased over last year from 7.36% to 7.43%. The guidance for the coming year, we want to maintain it around 7%. The specific provision coverage increased to around 75% as compared to 59.2% last year. The guidance for 2025 coverage for specific provisions as we are building it should be around 80%-85%. The bank is open to the Q&A session. I will hand it back over to you.
Thank you for the presentation. We are ready to take questions. You can either use the raise hand option or the text box to send us the questions. I can see Chiro. Please unmute yourself and go ahead.
Hi. This is Chiro Ghosh from SICO Bank. A couple of questions. First is, asset quality seem to have improved quite a bit. The coverage has also improved. Just want to get a sense that why are you being pessimistic with your cost of risk guidance, especially on the longer term? I mean, 2025 I can still understand, but a longer guidance appears to be very conservative. If you can throw some more color on it. From the NIM perspective also, I've seen the NIM has weakened a bit, despite CASA being quite strong. If you can give some ground reality, how is the funding scenario? How is the yield scenario? To just get a better sense of the NIM. These are my two questions.
Thank you for your question. This is Salman Siddiqui, I'm the Chief Risk Officer for the bank. On the coverage, as you see the guidance, we have taken a conservative view in terms of looking at not only our portfolio, but industry-wide view of portfolios as well, and how the economy is positioned for the foreseeable future. Although there are many avenues where the country has huge potential and they are contributing towards a growth in the economy, our view is more towards a conservative view as to how the existing portfolios are going to pan out in terms of their future outlook and the sort of economic impetus towards those particular sectors where banks in particular have felt the pressure over the last two to three years. Which is particularly post-World Cup.
We've taken that into consideration, and we have made our decisions excluding any, I would say, government intervention for resolutions. We've taken a very holistic view that should everything go in terms of how it is and how we see the numbers coming through, these are our estimates. If anything works in contrary to that, it will only be an upside for us.
Thank you, Chiro. For the second part of the question, this is Aman, the CFO. Regarding the [inaudible], I'll give you the reasons for decrease and also a bit of a guidance for 2025. The NIM for the first, I would say, half of the year, it was slightly declining. Primarily the reason was the deposits were getting adjusted at the new rate. The loans were already adjusted last year after the rate hike, last hike. Actually, the NIM started improving during Q3, the period between Q2 to Q3. But as you know, at the end of Q3 there was a rate cut. Naturally, the way our loan book is structured, all of the loans are price sensitive. They were reset. But the deposits will show a lag in getting adjusted.
As we speak, the deposits are getting adjusted to the last rate cut, and that is why there will be a further decline in NIM for the first three to four months. I would say early Q2. If there are no further rate cuts, then we will start improving post that period.
How are you placed in, say, if the rate cuts happens faster than expected, let us say four rate cuts happen or lesser cuts happen. How are you placed in a-
In that case, for us, the way our portfolio is structured in the short run, we would have a NIM squeeze.
Okay.
Right? Because all of our loan portfolio will be adjusted, whereas the funding side will not react immediately. It will go a bit of a lag, three to four months.
Okay.
That is, in the long run, of course, we will be better off, but in the short run, we will get squeezed.
Okay. Very clear. Thank you very much. That is all from my side.
Thank you for that. We have our next question from Rob Skepper. Please go ahead.
Yeah. Hi, everyone. It is Rob from Ashmore here. Thanks for the call today. Yeah, I guess following up a little bit from those questions, really. I guess looking at the medium-term guidance, that kind of medium-term ROE has come down a bit. I guess from what we can see on the build-up, it is a little bit guiding NIMs down. It would be good just to understand what assumptions have changed, why you think your structural NIMs are a bit lower. That is offset somewhat with a slightly lower structural cost of risk guidance, and then a big change in cost to income. Is that change in cost to income, is that a function of higher costs for some reason, or is there some other income that is kind of missing from the new guidance, or that you are kind of a bit more concerned about?
Yeah, it would be good just to get a little bit of color on that, please.
Okay. I will take it. The first question about the NIMs, as I earlier explained, the decrease was because of the way the portfolio is structured. The guidance changed accordingly because we have to take view on the rates. When the rate cuts happened, the view was clear that there will be cuts in the last part of Q4, so we gave the guidance accordingly. Based on the new views on the rate, we are not expecting rate cut to happen till June, so it will post that. If that is the case, our NIM will start improving in Q2. This is one. Second thing, regarding cost to income, the cost has become elevated, as Dimitris was earlier explaining. We are going through a significant transformation, naturally would entail investment in people, processes, and systems. This is getting reflected in the numbers and the financials as well.
On the cost of risk side, I would like to reiterate here the slight conservative numbers that you see there for 2025 onwards are at the back of we see certain resolutions of our historic, I would say, strained accounts coming through. That would cause a slight shrinkage in the portfolio initially. That lag effect of new assets replacing them has been accounted for. As you know, there is a gestation period between the time a credit is approved and by the time it gets funded. So we have accounted for that gestation period and have taken that conservative view. However, we are very confident that the actual numbers might be below our guidance that we are conservatively guiding towards for now.
Okay. Got it. The other one, I just wanted to, sorry, just come back on a bit. If we look at that medium-term guidance, and that cost to income guidance, I think previously it was cost to income guided at 25%, and now it has been moved to structural guidance of kind of around 30%, 31%. So I just kind of wanted to understand. I appreciate the investments you are doing now, but I guess that long-term guidance, that is in the part of the cycle where you front-loaded a lot of those costs. So I just wanted to understand why that cost to income kind of long-term guidance has moved up from, as I say, 25% to 30%.
Yeah. The long-term guidance for the cost to income ratio is around 30%-31%.
31%.
In the next three years. As we are going through transformation, the investment in, as I explained, in people, process, and system is happening now. Naturally with time, once we have the whole structure in place, that investment will of course go down and our cost to income ratio in the next three years, we are targeting in the range of 30%-31%.
Okay. Just moving a little bit more near term. Just looking at, again, at asset quality, and looking at that stage two book, which did see some improvements throughout 2024, both in terms of the volume of stage two loans, but also the provisions against that moving up. That is great to see. I just kind of wondered if you could talk to us a little bit about some of your expectations for 2025 on the stage two book. What kind of scenarios are plausible in terms of reducing the stock of stage two loans, and also in terms of the coverage against stage two loans? Are you happy with the current provisioning level or should we expect coverage to continue to rise against stage two?
Okay. I will break your question into two parts. The first part being what kind of a transition do we see in the stage two? So we see some positive movements in stage two, some curing happening and moving towards stage one post-completion of its mandatory curing period. That is the first part. The second part is, as far as transition towards a further deterioration due to further increase in credit risk, we do not see that happening because there are some very strong potential resolutions that the bank is working upon.
Of certain stage two customers, where once those resolutions come through, where we are at a very mature stage of working on those resolutions, we see the stage two number further, I would say, improving in terms of reduction. That is the first part. The second part, as far as the coverage continues, it is going to be through project in terms of when the number would reduce, obviously, the coverage would tend to improve. And we see a stable coverage continuing to be around the same percentage that you see today and maybe slightly improving. So, we do not see any untoward circumstances that may force this percentage to drastically be in contrast to our expectations.
Got it. Great. Thanks. Thanks very much, everyone. Thank you.
You are welcome.
Thank you. I have a few questions on the chat box here. The first one is from Srikanth Rebel. Could you please provide insights into the income from financial investments, which saw a significant decline in Q4 2024? Additionally, how should we approach modeling this income moving forward?
This is Dr. Fawad Ishaq. I am the Chief Treasury and Investment Officer. On the investment book side, as we have been guiding in terms of making sure that this investment book is more HQLA for us, and given the limitation in terms of how much we can expand the book on non-HQLA, the focus has been to keep it as a liquidity book, but also being cognizant of the fact that the size of it has to be in line with what is required from a ratio perspective and funding perspective.
We have made sure that we also benefit from taking some of these, staying in the book and making sure that the capital appreciation that we saw in terms of the rate move and the curve shift, we were able to reduce part of the portfolio in terms of taking some profit on the underlying available for sale assets as well. It has been the balancing act where we had grown substantially the book from 2023, and then we tried to take benefit of the drop in rates towards the end of the year by taking some capital gains on it and keeping the book intact from a HQLA perspective.
Thank you for that. I have another question from Nikhil. What led to strong recoveries in Q4 2024? Which sector did it come from? Do you expect such recoveries in 2025?
I think we saw certain recoveries in the real estate and contracting sector for sure. Most importantly, we saw some major recoveries coming through there. Moreover, we see that with the government taking certain initiatives to ensure that the real estate contracting sector, extended certain easing, I would say, steps from the government. We see this particular recovery to improve in the coming months or so, or in the coming quarters during 2025. That is the first part. The second thing is the bank has a very focused approach during the year and would continue with that approach during 2025 and beyond as well, where there is a dedicated department within the bank now, which is focused on not only looking after this particular stress portfolio.
But also on devising the client-by-client strategy towards recovery and gauging multiple options, through permutations, combinations, scenario analysis as to what exactly is the most viable option for the bank for recoveries. This has worked really positively for the bank, and we would continue to further this effort in the coming quarters and the years.
Thank you, Salman. Nikhil has another question. NPLs are plateauing out, especially during Q4 2024, where we saw a minor jump as compared to previous quarters. Does that indicate that the management does not see any further deterioration? That is from stage two to stage three.
As we mentioned earlier, I think our NPLs have remained flat over the last two to three quarters, I would say, for sure. Given that is at the back of the management's efforts that I just referred to in the previous question, and those efforts have yielded or have started to yield the results that we were foreseeing when those efforts were initiated. We are very confident that those efforts, as they are shaping up, would only continue to yield positive results and resolutions, which would result in a further improvement in the NPL ratio, either towards a decline or at least not further deterioration. This is what we foresee.
Thank you, Salman. I can see raised hand, Murad. Please go ahead.
Yes. Thank you so much. Murad Ansari from GTN. Thanks for the presentation. Just a few follow-up questions. Firstly, on the NPL resolution that you talked about, that they are in pretty advanced stages, I am guessing we should we be expecting some resolution to start reflecting in first quarter or second quarter kind of numbers? How soon do you expect those?
Okay. I would refrain from giving a very definitive timeline because such resolutions also involve a regulatory approval process, which has its own intricacies and modalities involved. I would not want to quote a hard line here or a hard date or timing here, but for sure, we are very optimistic that the resolutions that are in works will definitely be completed within the time frames that we are looking at and will continue to reflect through our quarterly results, I would say, throughout the year. I would not want to put a hard timeline.
Understood. Sure. No, no. Appreciate it. But just a link question to that, once you have a resolution, is there some restrictions on how quickly you can move those stage two loans back to stage one?
I think, I'm sure you're aware that there's the accounting standard itself, IFRS 9, by which the entire world governs its accounting provisions now, has an underlying requirement of the curing period.
Yeah.
The minimum curing period is a year that you need to adhere to before you start moving accounts into cured buckets or performance status.
Yeah.
We are no different. However, there are circumstances where the regulator may allow you an earlier movement into cured bucket.
Okay.
Like I said, there is a regulatory process involved, so I would not like to take the privilege or the advantage of committing something on behalf of the regulator, which may not pan out as I would translate it to.
Sure. My next question was on fee income. We have seen second half has been a bit better than first half. It seems steady improvement. Just wanted to get a sense of where that is coming from and how should we expect that trend to continue into 2025? Just looking at the split, from the split of fee income, it appears that the bulk of it is coming from bank services. Just wanted to get your thoughts around what to expect, what are the key drivers here on improvement in fee income.
Okay. For the fee incomes of the bank, in the past year or so, has paid attention to grow the non-interest income as well. This has been a topic for discussion in various investors call. One of the significant thing that happened last year was our agreement with Mastercard, as Dimitris earlier explained. The bank is now focusing on the avenues where we can generate non-interest income. The trend you would see in the coming year, the proportion of income coming from banking services will continue to be at similar level. This is what we are targeting.
All right. Thank you so much. That is all. Appreciate the answers.
Thank you. We have a question here on the chat box from [Dhanu Fonseca]. "Can you share some color on real estate construction sector exposure for the bank and the security for these segments?
I think we have shared it earlier as well, but I would say that the portfolio is around 21%. Sorry.
QAR 21 billion.
Yeah. It's around QAR 21 billion as we speak. As of 2024, the bank has been really selective now in terms of real estate and contracting sector growth. Most of the efforts are concentrated at this point in time on, I would say, sustaining the portfolio, making sure that the portfolio remains intact, remains performing. The sector has gone through a period of pressure, which we see government is taking certain concrete steps to ease off that pressure. We see those steps coming in. We've seen certain movements starting to take place in the sector. There are projects being announced by the government, pointing towards providing the impetus that the sector needs at this point in time to create that economic activity within that sector and its augmented industry. We see things moving in the right direction.
Regarding whether we see real estate construction contracting further ballooning up, it depends upon, we'll have very selective appetite, first of all. The other thing is we'll also be governed by our risk appetite, most importantly, and the concentration limits that we've set. We would like to adhere to them and diversify towards other sectors as well, where in line with the country's diversity direction, we would rather grow certain portfolios there to ensure that the book remains well-diversified. That's our thought around it.
Thank you. The next question is from Abhinav Sinha. "Your loan growth remained flat quarter-on-quarter in 4Q. Any color on that? The 5%-6% guidance this year is expected to be realized in H1 or H2? Also, the yields on loan appear to be under slight pressure in Q4. Was it because of high government loans?
Okay. The growth, first of all, I will answer for the growth guidance. The loan guidance for the current year, as I earlier explained, will be in the range of 5%-6%.
Now shifting to the yields. The yields in Q4 decreased because of the decrease in interest rates in the market. There were three rate cuts that happened during Q4 for 100 basis points. That led to lower yields on loan portfolio. What was the third one? This was it, right? NIMs and am I missing something here?
No, I think that is it. Yeah.
Okay.
Yeah. We have another question from Nikhil. Can you please give us some information on how the management perceives the minimum implementation of OECD tax? Will the 15% rate apply from 2025? Currently, are you paying any social security to the government?
I think regarding this global minimum tax, the legislation is not out yet, although the country has signed the treaty. What we are doing, currently, we are working on the impact assessment, and the impact assessment will be finalized once the legislation is out. Having said that, on a high level, we are expecting provisions of around 15% of our annual profit. This is what we're doing internally. That's it, Janany.
Thanks for that. We have one last question, Aman. Any plans to exit the international operations? Will the bank be subject to the new tax regime? That's the same question, yeah.
See, again, this is a very strategic view that we have to take, and currently, this is something that we will explore. As per strategy today, we have international operations that we're keeping, but again, we don't own the future. As we speak, we are keeping those operations.
I think that is it, but I think Murad has one follow-up question. Does the ROE guidance for 2025 incorporate the corporate tax of 15%?
Yes. The simple answer is yes.
Okay. Thanks. I cannot see any more questions, so thank you everyone for your time, and I will hand it back over to Hesham for any concluding remarks.
Janany, thank you as always for hosting the call, and thank you to all the market participants. As you all are well aware, for any follow-ups, please reach out to me directly, and on behalf of my group CEO and the chiefs that attended the call, we wish you all a successful year. Thank you all very much.
Thank you. Thank you, everyone.
Thank you. Are we on mute?