Good afternoon, everyone. Firstly, apologies for the delay today, and thank you very much for joining us.
This is Janany Vamadeva from Arqaam Capital, and I am pleased to welcome you to Doha Bank second quarter first half earnings webcast. Without further ado, I will now turn the call over to the Group Chief Executive Officer, Abdulrahman bin Fahad bin Faisal Al Thani. Over to you.
Hi, good morning, everyone. Thank you everyone for joining us to attend the Doha Bank quarter 2 result investor call. Today I would like I am in hurry, I think because if I am doing the call, I feel like I am not being listening, but the first time having this meeting outside the country. I would like to share today our first quarter and second quarter success. I will start with the retail banking. I am not sure if the team, all of them are there, Dimitrios, and Fawad, Fadi, are you there?
Yes. Everybody is here.
A couple of quite good news that Doha Bank did a very good performance on the retail. We start to collect the wealth people and the retail number performance has been changed for the first and second quarter. We reached the highest number in the bank for the credit card. Also, on the corporate side, we are doing very well today. Fadi is with his team. Myself, start to move on the market. We are booking very good deals, especially with the public sector, as we promised from the beginning that we will continue select the clients, to ensure that the growth going stable and sustainable for the future. As well, I will also talk a little bit about the transformation. You guys, you know that we are in the transformation for the last six months.
We launch Himma transformation internally for all our employees, and we launch 50 initiatives, I think the team are aware about these initiatives and we success to finalize it, and we will launch more things on the future. Part of it as well, the mobile app, I think we success last quarter to launch it. It is different and it make a big difference and help retail a lot to increase their customer. Very soon we are going to announce also the corporate app and this part also, the team will be sharing more details on it. Very important that we I know this is something that we are working very hard on it, the remedial part. We did a great job on it. First and I mean, second quarter. We interview couple of external company that will help us a lot to solve these issues.
As well, this strategy, we build it internally. We create our remedial team, but we are in hurry. We want to fix this issue. This strategy, we share it with the regulator to get their approval. As soon as we have it, we will start, I think, by end of this month. I think Doha Bank will be commitment to deliver long-term value and sustainable growth for our shareholders. Now I think I will hand it for Sanjay to continue the financial overview. Thank you, everyone.
Thank you, Sheikh. Thank you, Sheikh. Good afternoon and good morning, everyone. I will start with the financials overview-
One second. How can I put to mute? What to press so I can listen? Hesham?
We can. Did you mute him?
I can't. Can I? [audio distortion]
I have muted him, yeah. Thank you. Yeah.
Thank you. Go ahead.
Yes. Good afternoon, good morning again. I will start the financials overview with some guidance on Q2 results. On the balance sheet front, our total assets has grown 13.8% year-on-year and 6% year-to-date. This was a combination of investment growth and loan growth. Our loan growth year-on-year, the bank has witnessed an increase of 5.7%, while year-to-date loan growth stood at 1.6%. We have seen some loan growth in the first half of the year, and that led us to believe that guidance of 5% for the full year remains. We had two deals in the pipeline, as Sheikh mentioned, which weren't executed in the first half of the year, but should be materializing in the second half of the year.
On the deposit front, our customer deposits grew significantly by 17% year-on-year, but remained flattish as compared to December 2023 year-end. The bank's loan to deposit ratio has significantly improved to 96% as compared to 104% at the year-end 2023, which again, is a positive outcome for the bank, showing a strong liquidity positioning. Coming to the capital ratios, which remains healthy, our core equity Tier 1 and total CAR both sit at 13.43% and 19.7%, respectively. Given the expected asset growth in the second half of the year, the guidance for total CAR to be around 19% plus or minus 25 basis points. Moving to income statement. We have achieved a profit of QAR 432 million as compared to QAR 392 million compared to last year, which is an increase of 10.9%.
Our net interest income has seen some decline by 4.5% year-on-year. Our NIM stood at 1.93%, which has declined by four basis points from our Q1 2024 level. We will keep our guidance for the NIM, should be around by the year-end, 200 basis points +/- 10 basis points. On the non-interest income, which is specifically on the FX side or income from investment security, we have seen some positive momentum, and we will keep that similar momentum in the second half of the year. Our total cost has increased by 4.5% year-on-year. That resulted in a cost-to-income ratio that stands at 35.5%. But our guidance is to remain around 35% by the year-end. Our loan loss impairment for the first six months stands at QAR 406 million versus QAR 472 million same period last year, which has shown a decline of 14%.
Our cost of risk for the first 6 months stands at 139 basis points versus 166 basis points for the same period last year. This has been a positive development. However, for the guidance of the cost of risk, we will maintain 150 basis points by the year-end. Coming to NPL, which closed at the quarter end at 7.46%, which is flat as compared to Q1 this year, but has marginally increased from the year-end level of 7.3%. Again, we maintain our guidance of NPL around 10% by the year-end. But just let me remind you the fact that we would like to just insist that we will come back on Q3 call, and we will add some more color if there's any material change if forecasted over in Q4. Our specific provision coverage stood at 66% as compared to 59.2% at the year-end.
Our guidance again remain by the year-end in the range of 61%-65%. That's it for my side. Now we open the floor for the Q&A. Back to you, Janany. Thank you.
Thank you, Sanjay. We are ready to take questions, so please feel free to use the raise hand option or to message us on the chat box.
Hello? Hello?
Yeah, go ahead . We can hear you.
Thanks for the presentation. Thanks for your call. Regarding your NPL, from current 7.3% and 7.4% coming down to 7%, I just wanted to have an understanding about this because we do not see much change in terms of your provisions, which you talked about, PCL ratio. I wanted to understand how you will be achieving it. Do we see some kind of write-offs coming into picture which will help it? That is first question. Secondly, you mentioned in your presentation that the interest rates coming down will help the overall NIM. I wanted to understand your asset liability mismatch as of now, how you forecast it going forward and how you see any interest rates cut maybe in September helping you out in the coming quarters. Thank you.
Okay. Thank you for your question. This is Salman Siddiqui. I am the Chief Risk Officer for the bank. As far as the NPL movement is concerned, you may have noticed it is a flattish number for now, as my colleague Sanjay just mentioned. Yes, there are certain write-offs that we will be undertaking during Q3 and Q4 respectively. On top of that, we are looking at some positive movement in the portfolio as well in terms of the asset growth itself, which is going to obviously help in bringing down the number, because there are certain very solid deals that have already been approved and we are waiting just for those deals to get funded. Once those deals are funded, they will definitely reflect through the NPL number and you will see a positive movement, downward movement in the NPL for sure.
Thank you, Salman. This is Dr. Fawad Ishaq. I am the Chief Treasury and Investment Officer. Your question on the NIM side. With market pricing in 100 basis points, 100% rate cut in September by 25 basis points and a talk about two to three cuts
By end of the year, the way we are set up in the asset liability side is that we have most of our liability side in three-month bucket. That's function of naturally the sector in terms of how the deposit profile is. That was where we got the most pressure because we did not have long-term funding match with assets. As the rates went up, the liabilities started to reprice very quickly. Even in the second quarter, we had some liabilities which got repriced higher, putting pressure in terms of the NIM. The benefit we will have is exactly when the rate cuts start to happen because of this mismatch, given that the three-month bucket on the gap maturity ladder is the largest portion of our liability curve, we will start to reset that very quickly.
On the asset side, we have a large investment book, as you know, and the fixed income at that perspective, as the rates start to go down, the NIM will start to expand for us between the difference of what we're getting on the asset side versus where our liabilities are currently.
I mean, this is in the also in context of your $500 million, I think, which you raised in the month of March on the bond side. You are including that also on your funding side and bringing that into picture, right? When you mentioned about-
Sure. What we have done is that we have sort of looked at also how we're using the inverse curve. The bond, as you know, is 525 coupon, 545 net cost to us, has been kept fixed. Then we are taking the portion of that and keep on making it floating to match our asset growth. All the assets who are being priced on a benchmark on floating basis, then everything we keep on unhedging. On the liability side, from a syndication perspective, on the one-year bucket, we've now hedged, which is a 60 basis points of saving for us. Yes, we are trying to manage it through long-term repo to maturities, which are on floating basis.
All that cost will start to come down because about 40%, 50% of that book, which is about QAR 4 billion worth of, is being funded through a repo book. That will significantly come down because 100% of that is floating. We have a combination of long-term fixed benefiting from the inverted curve while we have on our [audio distortion] longer-term match with stabilizing it from an asset liability perspective.
Okay. [crosstalk] Thank you, sir. Thank you for answering.
Hello. Can I maybe ask a question more on the NPL book? Perhaps you can just provide a little bit more color what the longer-term plan is with these NPLs. Is there potential to restructure some of that? Do you see that the borrowers that have NPLs have other assets that they could realize? Maybe you can also clarify how concentrated that book is, and I understand most of it is real estate, but maybe just a bit more color on that. Just how do you plan to sort out that book over the next few years? Thank you.
Okay. On the NPL side, again, the borrowers, yes, while we understand that some of the underlying collateral is real estate and the real estate market is witnessing somewhat of a slowdown or a marked slowdown rather, we are in talks with these customers on alternate assets where we can swap the asset or replace the asset with another better quality collateral, as part of the NPL settlement, I would say. Those negotiations with certain customers are at an advanced stage and progressing positively. On top of that, the bank has worked upon its strategy towards this NPL resolution, which is being discussed with the regulatory authorities as well as to how the bank plans to implement this strategy and the manifestations of that strategy, the way we see them yielding the results.
We're very positive about it, that over the next two plus years, there'll be a sizable difference in the portfolio of this NPL book, where we see it today and how it ought to pan out post the implementation of that strategy.
That is very helpful. Can you just clarify regarding the NPL resolution, do you expect any sort of help from the authorities in terms of perhaps sorting out that book or maybe them taking over some of the more problematic real estate loans and so forth? Is that a possibility at all?
I think if the authorities at all would take any action, that would be at a sectoral level in terms of they may carve out certain sectors and then look at them in isolation. But anything to say on behalf of the regulator would be not fair on my part. I am strictly speaking from a Doha Bank perspective what I shared. Anything that comes from the regulator would be an icing on the cake kind of situation for us.
Okay, great. Thank you.
Thank you. We have a couple of questions in the chat box. The first one is, will there be 15% corporate tax in Qatar by 2025?
Yes. Again, I think we gave some flavor on Q1 call and year-end call. Our answer is still status quo. Still there is no clear guidance. But at the same time, we are doing some internal assessments to be ready if at all it comes into place.
Thank you, Sanjay. The second question is, back in the history, before Doha Bank was willing to convert to Islamic bank, is this still on the radar?
Well, hi, this is Dimitrios Kokosioulis. I am the Deputy CEO. On that front, as per our transformation strategy, we have actually, the topic of Islamic banking has been discussed internally, actually. But as yet, there is nothing that has been recommended or approved. So, when there are some more resolutions or information to share, we will, of course, share with all the stakeholders and partners.
Thank you for that. I do not have any more questions in the chat box. Oh, I have just got one. Can you please elaborate how Doha Bank will reach cost income ratio of below 25% in the medium term?
We have given our guidance in the strategy in the five-year time. But if you look at last year also, December end call, Q1 call also this year, we said our cost to income ratio, as I said in my opening remarks, will remain at this level, though there are a number of initiatives happening in the cost, control side. But the cost saving which is happening, it has been implied to the right people, process, and technology. So that cost to income ratio will remain elevated, at this level. As said, our cost growth, which you see in first half is 4.5%. We are giving a guidance that our total cost will remain high, at 5%, I would say by the year-end also. If you look at the way things are happening, the 50 initiatives which CEO talked about, Deputy CEO is here.
The way things are turning around here, the efficiency has been brought onto the table and the cost efficiency. Like for example, he gave an example of mobile banking. We are still spending money on those initiatives and that result will start and slowly and steadily will come into place, by the year-end or in the coming years. In the next five-year strategy, we will have some impact, and we will try to reach our cost to income ratio around that 35%.
Let me add to what Sanjay said, that we are in the transformation mode, so we are taking all actions possible in order to reduce our OpEx. On the other hand, there are investments that need to be made in the technology side. We mentioned about mobile banking. We had two releases actually in the past six months, and we have more than 15 new features that were actually introduced. 160 features that were part of the facelift. We have seen some good numbers in the pipeline that help us reduce traffic from branches. We have seen an increase in subscriptions by 44%. We have processed more than QAR 1.35 billion in financial transactions through mobile banking. We have seen active users going up by 5%. The values are and the volumes we have processed is more than 10%.
We have seen also some reduction in some queues in branches. This will enable us down the road to be able to restructure the branch network, to reduce branches, reduce our OpEx and CapEx. But we need to all understand that we are in transformation mode, which means that there has to be some investment in our mainly IT infrastructure to modernize, to follow up and invest in mobile banking, in super application, in the corporate mobile app that is coming up, in treasury capabilities that will come and increase, and have more revenues for the bank. It's a trade-off. But we are seeing mobile banking and things coming up. Volumes are going up. Traffic is being reduced in branches.
This enable us to make sure that we are on the right track and to be able to cost and to minimize and rationalize costs in the meantime. But rest assured, measures are taken by the bank to renegotiate contracts, to review headcount, and given the automation that we will get and the maturity, we will be able to proceed with the restructuring.
Thank you, Sanjay. We have an audio question from Aybek Islamov. Go ahead, Aybek.
Yes. Thank you for the conference call. I wanted to address your guidance slide that you gave us this time. On margins, you expect that your five-year target NIM could be around 2.5%, right? What is the key assumption here? Is that around the funding costs going lower, or you think you can also optimize or improve your asset yields? Obviously, I am asking this question in the context that over the next five years, interest rates are going to be lower. Typically, that also means that the margins do not do well when interest rates decline. That is my first question. Secondly, I wanted to ask you about the fee income. When I look at your first half fee income, it is actually slightly down compared to first half last year, so slightly down year-on-year. What are your thoughts on the second half?
Is the fee income a potential area which could mitigate a weaker NII trend, for example? That is the second thing I wanted to ask you. I think the third question is around your return on equity heading into H2. Given your comments earlier on the operating cost growth, 5%-6% level, looking at what is happening with your net interest income in the first half, it sounds like second half ROE could be substantially lower than the first half. Also, you mentioned that there could be some write-offs, which will bring your NPLs lower. Do you agree with this view on the ROEs in the second half?
Sure. I will take the first question. We are looking at the overall structure, as we said, of the asset liability, and we look at the IRRBB very closely in terms of the impact of every single basis point. So 25 basis point, the whole banking book sort of gives us a very clear picture in terms of the impact of it. Where the NIM is going to increase is threefolds. One is naturally because of the mismatch that we are running currently, we have liabilities repricing much more quickly than we would have on the asset side.
Number two, we have a large book, which is close to $10 billion on the fixed income side, and we have flexibility in terms of fixing that coupon and slowly creating that arbitrage that we will have in terms of having floating rate repos while we have a fixed rate coupon coming into that book. That will contribute substantially. The third is we are actually looking as a strategy to grow outside of Qatar. We are looking at markets in terms of where the spreads are much higher compared to Qatar, and we are going to use the arbitrage that we have of single A-rated bank with a liability and funding cost to be able to then look at borderline investment grade and below.
Part of it is this newly approved strategy on the FI side, where we're looking to increase the proportion of FI assets outside of Qatar, and that is probably the highest yielding right now, portion of that balance sheet. In 2- 3 years, we're projecting to at least double the size of contribution coming from that as well. So threefold, as I said, the asset liability mismatch, which is in our favor. The second is the large asset book that we have on the fixed income side. Third is the global expansion strategy in terms of identifying opportunities with higher yields.
On the fee income?
Yeah.
Just on the fee income side, yes, the performance has been denied, but that doesn't mean that the entirety we are down. There are certain products, as Sheikh mentioned in his opening remark, that we have reached the credit card to the maximum. That retail side of it is doing pretty good, and there are some positive movement over there. What has lacked in the last 6 months is that there's little bit of lack of momentum in the growth side, which will happen in Q2, and there's trade finance sort of commission, which we are working on. There are various initiatives, which I'll ask Fadi to just give you a brief on that.
Yeah. Hi, everyone. I'm Fadi Fattal here. I lead the wholesale banking for Doha Bank. Just a bit of perspective in terms of NFI and fee income. We all are aware of the slowdown in the economy on the contracting side, and as a result of that, the fee income with regards to LCs and guarantees is obviously reduced on the back of the lower number of projects that are being rolled out in the contracting sector. As a result, that would impact the bank's balance sheet, income statement. In terms of action points that we're doing, obviously, we're diversifying the books. We're looking at other ways of generating or compensating for the drop in fee income from the contracting sector. We've done a number of things and we're looking at bridging the gap through those action points.
Also something else I wanted to add, this is Dimitrios Kokosioulis again, that we have actually reviewed those fees, okay, across wholesale banking with my colleague, Fadi, and also retail banking all over the enterprise, in order to be able to make sure that we charge the clients the correct fees. So we have gone to Central Bank with a list of fees that we want to actually impose. This proposal from our side is under review. We believe that once we get the clearance and the green light, this will have also a positive impact on our fee income as well. So this is another initiative that we are undertaking with the regulator in order to be able to allow us to reprice and actually put new fees that we were not charging before and enhance our fee income as well.
And one more thing in terms of wholesale banking. We're looking at introducing some new products and services that will generate additional NFI, in addition to the healthy pipeline that we've got on the go, which obviously will generate fee income for arranging and facilitating new draw downs.
Yeah. On the question on your return on equity, I think let me take in little bit of detail on the P&L side. When you look at the first half versus second half. What has happened in the first half, your net operating income is a little bit under pressure. The predominant factor was the net interest income, right? That's one of the factors which Fawad has answered that this is going to be, in a way we can say that it has sort of reached to a bottom to net interest income now. Going forward, if further rate cuts happen, we will see some more positive momentum with the net interest income.
If you look at the fees, we just now answered that we will see some positive. As I mentioned in my remarks also, non-fee income, for example, FX and the investment, the same momentum will carry. If you look at those increase in the income side and where we are talking with the 5%, which is the run rate which is going on in the cost, I think will be mitigated by those increase in the income. On the last part, which is the crucial part, I mean, historically if you look at past year history or before, your cost of risk always has been on the outline in the Q4, but that's not the case anymore. The guidance which we are giving cost of risk is conservative on 150 basis point.
We believe, if a significant recovery comes in, our cost of risk may further go down. But being on a cautious side, we are just giving a guidance of 150 basis point. It can be 140 basis point, but I'm not touching on that. If you keep all those line items and combine all those together, I think the guidance which we have given, we will be able to achieve that return on equity.
Thank you.
Thank you for that. I have a few more questions on the chat box. First one is, in terms of loan growth expectations, I think you said the H2 pipeline was good. Full- year guidance of 5% growth. What sectors do you see the increased demand coming from?
Yes, thank you for that. From the wholesale banking group, we are looking at increasing the public sector definitely. We have already had some successful strides, as my colleague Salman mentioned earlier. We actually do have a number of large ticket transactions that have already been approved, which we are waiting for documentation to be finalized. O bviously then draw down will happen. Public sector is definitely a big momentum that we are seeing. We are also looking at trading and services. Contracting, we are being very, very selective and obviously the same with real estate. But the main sectors that we are looking at growing are public sector, GREs, trading and services.
Thank you. The second question it is about margins actually. As Doha Bank increases its loan book exposure to public sector and GRE customers, will this lead to reduction in asset yields and NIM compression?
I can take that from a wholesale banking point of view. Obviously public sector commands more competitive pricing. However, at the same time, we are looking at it from a one bank perspective, i.e., we are looking at cross-selling the bank as a whole. We do not want to just give a term loan without. On the back of that, we are also having a number of discussions by collaborating with our retail banking colleagues, with our treasury colleagues, in the sense that we go to a client, whether it is public sector or private sector, and we say, "Okay, we will give you X amount. In return, we also want to get your other businesses." And we are actually having a lot of discussions. We are winning a number of mandates with regards to point of sale, with regards to insurance, with regards to international also is a big success that we are seeing.
There is a number of things on the go.
Yeah, adding to what Fadi has said, this is Sanjay here again. I mean, of course, yeah. There will be less spread, but at the end of the day, Dr. Fawad just now touched upon when the curve invert happened, and then we have fixed our liquidity issue as a part of timeline. What are the costs we were supposed to absorb earlier, we have absorbed in the first half of this year. On that side, I think we will be more competitive in the NIM also. We can manage that with the rate going down. As Dr. Fawad said, we are expecting 2 to 3 cuts by the year end. That will definitely will help in the NIM. Just I want to highlight that before, when the rate increase environment had, we were not able to transfer the entire increase in the rate to the customer.
That will further add to our NIM in the future growth.
Thank you, Sanjay and team. The last question I have is, fee income growth looks soft for the second quarter. What is happening here and what is your guidance?
As Fadi has explained, with various initiative, we should be landing year end by flattish to low single digit growth in the fees and commission income.
Thank you, Sanjay. That's all we have in terms of questions, so I'll hand it back over to you, Hesham, for any concluding remarks.
Thank you, Janany, as always, and thank you to all the participants for taking time out of your day to spend it with us. As you are well aware, if you have any follow-up queries, please hit me up and I'll be happy to arrange calls with the respective chiefs of the business, or at least get you the response that you're looking for to your queries. I wish you all a good safe summer and we'll talk to you in Q3.
Thank you. Thank you, everyone.