Good afternoon, everyone. This is Elena Sanchez, and on behalf of EFG Hermes, I would like to welcome you all to Doha Bank's Q1 2024 earnings call. It is a pleasure to have with us in the call the following speakers from Doha Bank: Mr. Abdulrahman Fahad Al Thani, Group Chief Executive Officer; Mr. Sanjay Jain, Acting Chief Financial Officer; Mr. Fawad Ishaq, Chief Treasury and Investment Officer; Mr. Salman Mustafa Siddiqui, Chief Risk Officer; and Mr. Hesham Kalla, Head of Investor Relations. We will start the call with a brief presentation on the results by management, and then we will move on to the Q and A. I would like to hand over the call now to the Group Chief Executive Officer, Mr. Abdulrahman Fahad Al Thani. Please go ahead.
Good afternoon, everyone. Hope everyone is well. Today, I want to start to introduce my new team who just arrived last quarter. I will start with Dimitris, joined as Deputy CEO, and he will have the mic to introduce himself. Then I will pass to everyone to introduce themselves on the call first.
Yeah. Thank you, Sheikh Abdulrahman. My name is Dimitris Kokosioulis. I am the Deputy CEO of the bank, heading retail technology operations and digital. I joined the bank two months ago. My background is international banking. I bring more than 23 years of experience, having worked in Europe, Middle East, North Africa, the States, and global and regional institutions like Citi, HSBC. My last role was at National Bank of Kuwait as the Deputy Chief Executive Officer of the bank in Kuwait. I would like to introduce now Mr. Fawad.
Yeah. I was actually there at the last call. I had recently joined then. I joined about four months ago. I have been looking after the group treasury and investment. Currently, I am also looking at international banking group. Looking forward to having a discussion and answering some of your questions on this call.
I think now I am going to introduce Salman, if he will be able to talk, because he is in Saudi Arabia for a visit. Salman?
Yes, sure. As-salamu. Good afternoon, everyone. My name is Salman Siddiqui. I am the Chief Risk Officer for Doha Bank. I have recently joined the bank around two months back now. My prior experience has been in the region, in Saudi Arabia and in U.A.E. Before that, I have worked with international banks such as Standard Chartered, Citi. Very happy to be in this call, and we look forward to a very productive session. Thank you.
Also Fadi will introduce himself. Fadi?
Yes. Good afternoon, everyone. My name is Fadi Fattal. I have got 27 years of corporate commercial banking experience with multinationals. I actually just joined less than a month ago with Doha Bank, as the Acting Chief for Wholesale Banking. Previous positions that I have held were senior roles at HSBC Group, both in Qatar and Canada, and previous to that, Citibank, Dubai. 22 years with HSBC Group and previous to that, six years with Citigroup. Looking forward to this call.
Thank you. Can I start now? Everyone hear me?
Yes, we can hear you. Please go ahead.
Okay. After maybe last call, a couple of things have been changed in Doha Bank. We promised to update on the call every quarter what is going on and where we are today. I will start, of course, with the transformation, because this is the main change for us. We feel the progress was great, not expected to be this fast. Everyone accept this transformation, especially people who has been working here for the last 10, 15 years. This is a challenge that we faced from day one. To be very honest, we finalized the assessment. We know where our issue is, where the problems are from day one. Within the first eight weeks, we found out everything. We explained this. We put our regulator and our board, we showed them the problems and the issues.
Today that we are going to move, we put a direction for ourself where we need to be in the market and how to do the change. Nothing will be changed within one day. Yes, we believe that the change is going to be taking more time, but as well, we limit ourself. We do the pressure internally. I think everyone was working, I will not say they are sleeping in Doha Bank, but the truth, they are working until night to ensure that we deliver on time and this is something that I need to clarify. I will start as well, with this transformation. A couple of things were there. We put our strategy. It was approved by QCB, by the board and by ourself. We believe this is the future.
Let's now move on. The main important point that I want to say, this was on the retail or the business side. I will start with retail. Retail, we reduced a couple of branches from 22 to 16 today, which is a great move, and I think we are going to do more. We try to have more payroll from the government entities, which will add value for our future. This agreement has been settled with a couple of Q company. Now I'm going to move to the international part, which is the branches. I think Dubai, we start with Emirates. Abu Dhabi and Dubai, we merged this branch, and also the last six months, we success with it. rep office, we evaluate a couple of them. We have the agenda.
We started negotiate with these countries to close a couple of them and on the process because we need the approval also from the other side, from the other countries. We're reducing the rep office from 16 to 11 and 10, and we will go more down as well. The business here internally in corporate, total assets growth has been good. The deposit growth maintained. The LDR, we reduce it, and it's not because of regulation as well. This is part of our agenda, and it's going to be for the bank regulation as well. I think I covered maybe most of the point, but maybe a couple of things that we need to know that cost, income, I mean, the branches. I don't know where to start, but I have a lot of things to talk about.
I think that the team also will help me with a couple of points. We'll start with Dimitris or Fawad to also go more deep on each sector, what they did.
Sure.
Or how they helped the bank.
Sure. Just to add to what Sheikh was saying in terms of transformation and some of the things in Q1 that we had spoken to you about and now that we have delivered on, I think starting with the EMTN program, we were successfully able to launch a QAR 500 million five-year bond. We had investor calls. We did a roadshow, a very successful one. We had QAR 2 billion of order book. We were able to issue it at one of the tightest spreads that Doha Bank has seen. That is basically confirmation of the confidence that investors have in terms of our transformation and the plan, and it is forward-looking. We are planning to keep a live EMTN. Every year, we will be doing the issuance. We will be doing roadshows. Along with that, we are looking to go to Asia now to do NDR.
A lot of things are changing on that side. On the ratio side, you have seen the change from Q4 to Q1. You have looked at the LDR ratio, the LCR ratio. All of them have shown significant improvement, and we had highlighted that to you guys in the last call. From a perspective of cost of funds as well, we have managed to do long-term repo to maturities, which are five to seven-year funding, which is at the cheapest sort of curve in terms of the funding cost for us. We are replacing high cost deposits. I think you will start to see the impact. Q1 might not be reflective of that change, but there is significant now focus on making sure that we are liquid, but we are not paying up for the cost of liquidity to be able to fund our asset base.
On the investment side, significant amount as we had agreed and sort of indicated to you guys, the portfolio now stands at around north of $9 billion equivalent. It is income generated. We have rolled some of the large maturities that were due with low coupons now with replacing them with the high-yield ones, and we keep on replacing that as more securities become available. You are seeing that in the interest income increase this quarter in the securities portfolio. These are some of the highlights. We are happy to go into detail and answer any of your questions. Over to you.
Before I pass to Dimitris, Abdulrahman Al Thani again talking. A couple of things I did not mention also was important to deliver for you guys that, because of the sectors that it is very important for us and it is something very important to the transformation that we take it as a priority, the remedial sector. We know it is a problem that for these accounts that we need to solve it, and I think the board approved for me last quarter to issue this remedial sector. It become reporting to me directly. That is because it is very important for us. We put an acting right now. We implement a couple of people. There is a strategy on this. I will go later on deep on it. This is very important, and we start to solve a couple of accounts, which is also important.
EMTN, I would like to thank Fawad and the team as well because it was great and the pricing was very good comparing with other local banks this period and it's a success. A very important part with the transformation was the digital. To be very honest, the timing is like killing us and we want to ensure that we're doing the right and correct things. Digital, one of the things that are important for our future. I think Dimitris will go deep on it, but the mobile app that we will be announced very soon, next two weeks. There is a big announcement for our mobile app, and it's one of the best in the market because the team doing selected over here. They've been working on the whole market.
They have good experience, and we ensure during the test last three months that it's workable and it's going to be maybe one of the most advanced app in the market. Regarding the business, two things maybe I highlighted earlier, but it's important also to ensure that I pass this message. As you are aware about that Doha Bank previously, they don't have the private banking. Today, we ensure to hire a couple of qualified people who's working on the market. They have a good background with a good client basis, so they are going to join us. Also, implementation to hire this quality people, it's not within one day or two days, it's going to take time. But pretty sure that it's a success story. We started on this public sector. A lot of you guys will ask me how.
My background, I'm working on the public sector, and also my focus for the future of Doha Bank to be very close with the public sector. I'm shocked that a couple of deals today in the market, bigger amounts. We are talking about more than eight or 10 clients with a huge request of lending, and this is very important for our future to select our partner. Today, I'm the one who select who I'm going to give lend. It's not about I'm trying to find. No, there is on our table today more than eight, and we are discussing this with Fadi and the treasury as well to ensure that this is not going to be very cheap lending. It's going to be also making a margin for the bank, and will add the value for the entities.
This is where, briefly I said as a business, where I'm focusing for the future of Doha Bank. Now I'll pass it again to Dimitris.
Okay. Hello again. If we focus on the transformation journey that our Group CEO has just outlined, transformation is all about also behavioral changes. The bank is actually focusing on making sure that all people are fully aligned and understand what is the purpose of the transformation. In the retail banking, we have actually looked at the way we operate to reduce branches, to become more digital. Retail is all about innovation technology. So we are focusing and investing on technology. The core banking system is going to be a key strategic pillar of our expansion and actually of our new strategy. We have two core banking systems.
We want to go with one and make sure that we will be able to start, first of all, with our international operations, and then to implement also during next year in our main country, which is in my work presence, which is Qatar. So it is going to be a state-of-the-art system that will give us many capabilities. We will be able to digitize processes, which is very important step in order to also make the whole customer journey more seamless and make sure that we reduce turnaround times and have efficiencies. So branches are becoming more customer focused. Customer experience, data analytics, these are three key critical things we are focusing. Also the technology stack, we are reviewing various other systems. This is a golden opportunity for us, as I said, with the core banking system to digitize processes.
This can help us also become more efficient, take out actually bespoke systems that the bank has for several years. Of course, in the cost side, this will allow us to make sure that we reduce costs. We become more efficient, as we said before, through rationalization of our international presence, rationalization of branches. We cannot go down to one or two branches because it is a market, it is structured that way, that people want also to deal with people, with staff. So we envision to actually be reducing this number of branches even further. As we said, the mobile banking first is our key priority, focusing on Qataris, having all our services on mobile banking.
As it was mentioned by our Group CEO, in a few weeks, we will be launching a new version of our mobile banking application that will be having a facelift, user-friendly, seamless experience, adding new features, peer-to-peer payments, different actually limits for increasing and making sure that our clients can perform payments and transfers, and opening sub-accounts, et cetera. Also we are working for the future to have a super app and to be actually the first bank to launch a super app and be the best application in the market. Now, we digitize processes, and this will help us also utilize new technologies, AI, machine learning, robotics, process automation. At the same time, will allow us also to review costs. We are negotiating with premises cost, rentals, and also we are going to negotiate key OpEx lines with various vendors.
But also we are restructuring our teams, making sure that we come up with more lean and efficient structures, reducing layers, et cetera. This is a big cost optimization exercise that is taking place. Also through our digital transformation agenda, digital journey, we are going to provide a special focus on our customers. As I said, Qatari is also the key target that we look to target in the market for retail, and we are looking forward to the journey.
I think maybe Fadi or Salman, if they want to continue with the talk.
Yes, I can start. Thank you, Sheikh, and thank you, everyone. So basically, on the wholesale banking front, what we're looking at doing in terms of KPIs is we're looking at growing the portfolio, diversifying away from real estate. Basically, prioritizing the diversification into sectors that are not prone to the real estate market, such as the trading sector, the energy sector, the public sector, green, so ESG. That's one point. Another KPI that we're looking at is transformation of the wholesale banking. Sorry. Transformation of the wholesale banking structure. We also want to, or we acknowledge the fact that digitization is the way forward, and we're also beefing up and revamping our entire digital platform, both in terms of our online banking for customers as well as to follow that would be the digital application on mobile application.
We're also looking at transforming and upgrading our internal core lending systems at the bank. Obviously, cross-selling is a key priority for the bank to build up our NFI, non-funds income. Predominantly, all will be centered around pipeline and making sure that we're out there in the market, winning as we should be winning.
Okay, Salman, if you want to add anything as well.
Hi again. Salman Siddiqui. On the risk side, we are looking at our overall portfolio. Doha Bank has been very consistent on rationalizing the portfolio in terms of where we need to build our provisions. It is very much evident through our numbers across the last two to three years. Very consistent stream of provisions has been built so that we know where we are heading on accounts that show a significant increase in credit risk. We are also working very closely with our business teams to support the long-term strategy and the medium-term strategy on Doha Bank on the asset buildup. We are targeting with our business teams sectors where we see there is still potential of growth while we are being cautious about the sectors where we see the pressure is still persistent.
On account of our stage two, stage three portfolios, you would have seen that Doha Bank has maintained very decent amount of coverages and will continue to build our coverage ratios in terms of both stage two and stage three accounts.
Yes, we have.
Yeah. So on top of that, at the back of that, we are also looking at how we can, looking at stage two, how we can help our customers on a case-by-case basis to actually be cured or be fully remediated on a timely basis so that we do not see any unwarranted migration from stage two to stage three. That is being done on a case-to-case basis. Also, at the back of the central bank's circular that has come out in terms of particularly the real estate and hospitality sectors, and construction sector, where we see the industry was undergoing some sort of pressure. So we have used that opportunity, and we are looking at each customer in the portfolio so that we can see how we are placed and how we can continue maintaining the stability in the portfolio going forward in the year 2024.
Thank you, Salman. You want to go ahead, Sanjay, and give—
Sure.
—high-level color on the numbers?
Yeah. I think most of the things has been said by our CEO and the business group. I just read out some numbers on the key metrics, number on the financials, and then we can go to the question and answer. On the balance sheet side, our total assets increased by 5.9% year-on-year, and our loans and advances grew by 2.7% year-on-year. Our guidance for the year growth of the loans and advances is 5%, and our customer deposit grew by 7.5%. That led to our LDR ratio, which is mentioned by Sheikh and Dr. Fawad, stood at 95.4% LDR ratio at the year-end, and the guidance for the year is that will be around 100%, maintaining LDR ratio to 100%.
Our NPL stood at 10.6%, and we maintain the guidance which we gave at the year-end, circa 7%. However, we will keep on updating as soon as we progress on the quarter. Our core equities is good, strong, 13.34, and total CAR stand at 19.4% total CAR, and the guidance for the year-end is around circa 19%. On the P&L side, we have achieved a profit of QAR 231 million, which is 10.9% growth year-on-year for the same period last year. Our net operating income increased by 4%. Our cost increased by 5.1% year-on-year. Our cost to income ratio stood at 35.5%. The guidance for the year-end, that we will be maintaining below or bring it below our cost income ratio, below 30%. 35%, sorry.
Our loan loss impairment, you have seen it has improved to QAR 179 million versus last year, QAR 204 million, which is a decline of 12%. The cost of risk is 1.3 basis point, and the guidance for the year we are giving is 150 basis points. Our specific provision coverage improved to 62%, coming from year-end, 59.2% at the year-end. Our NIM as of Q1 2024, is 1.97%. The guidance for the year we are giving is 200- 210 basis points. I think that summarizes the financials. If you have any question, we have our team along with me to answer any of your question. Thank you.
Thank you very much for the presentation. We will move now to the Q and A. I see we have a few questions already lined up. We will take the first question from Lee Beswick. Please go ahead. Lee, your line is open.
Can you hear me?
Yes, we can hear you. Please go ahead.
Okay. Thank you. Could you just, a couple of questions, if you do not mind. Sorry, I think you just said cost of risk will be about 150 basis points for the end of the year. Is that correct?
Cost of risk.
Annual basis.
150.
Sorry, I missed that.
150 basis points.
Okay. Excellent. Thank you. Secondly, just on your provision coverage. The stage three coverage, sorry, has deteriorated a little bit, essentially just because the NPL ratio went up. When do you think that NPL ratio will peak?
See, as we said, Sheikh said in the last call, in Q3 and Q4 call that, yes, we conscious of the fact our NPL ratio and then that will tick up, which ticked up at the year-end. He mentioned very categorically, in his brief that he has created a remedial department, which is reporting directly to him, and that will take care of. Salman also touched upon on this thing that we are working very closely, I would say, hour to hour basis. I would ask CEO to just jump in and—
Yes. This period, we are aligned with our new chief of the risk that together to build an internal strategy to build the right team. It is not immediately being solved, but yes, there is a strategy that we will start immediately on it. It is not something that is going to be next quarter or the last quarter. Today, we have start. I said three different accounts have been solved, and we are continuing to solve this big accounts, which will really directly impact good for the bank, as well the write-off, I said, it is a good thing that to work on it as well. Part of the things on the strategy.
To continue to finalize this team, it is going to take time, but as well, this NPL issue is not only with Doha Bank. Yes, Doha Bank have, but we have considered it is very important to solve it. Other locals bank have the same or more, or worse as well. We are working, and we understand how to solve it. We put the solution, and we are part of it, and, with the central bank as well, they are aligned with us. It is a full strategy, from the bank and the management of the bank risk and the central bank. We are aligned together to ensure that we solve these issues. We have time, we have period, that it is not going to be solved within one quarter or two quarters. It is going to take two to three years. But, for sure this will be solved.
Okay. I suppose the issue—
I am sorry.
Sorry. I was going to say.
I am sorry. In addition to what the Sheikh and my colleague Sanjay also mentioned, I think we have taken a very strategic view of these things. We are going in a very stepwise manner. The Sheikh already mentioned that there is a very dedicated function now, which is called the Corporate Remediation Unit.
That is going to have a very focused approach on these accounts. In addition to that, I already mentioned in my earlier comments about selective restructuring that we are going for in line with the guidelines issued by QCB and in consultation with QCB. The other thing that we have very actively activated and are very focused upon is the early warning mechanism that the bank is using now, where we are seeing, very closely monitoring the portfolios. We are closely monitoring the sectors for any early warning signs that they may demonstrate so that we can initiate remedial steps rather than looking at it in a post fact manner. The third step that the bank is taking, which is a business as usual asset growth as well.
Our asset growth, as was earlier said, is focused towards sectors which offer a steady risk reward stream, a balanced equation of risk reward, so that that asset growth also sort of rationalizes the NPL ratio. Last but not the least, it is the coverage that you refer to will continue to get rationalized as the asset book also grows and the NPL number gets too rationalized. You will see the coverage ratio will continue to improve as you have witnessed over the last few quarters. Thank you.
Okay. Sorry, it did not improve last quarter. It got worse. That is my question. Your NPL is ticking up slightly. Your cost of risk will sort of be in line with last year. Maybe you do get some asset growth. I do not know where from because there is zero demand for it, but maybe you do get some asset growth. The question is, how much will the coverage, which is already extremely low, how much will it get lower? I suppose that is my concern.
We do not have low coverage on stage. We already said that. What is your question?
Lee, can you rephrase that question exactly what you are looking for?
Yeah, sorry. The provision coverage is 62%.
Right.
In stage three. Can we expect that 62% will not go any lower?
Yeah. If you look at, I said that what we expect our coverage ratio by the year-end is between 61% to 65%. Salman also said that we are going to continue to improve our coverage ratio. What happens is, though we are taking provisions and why we are taking 150 basis points as a cost of risk because of the, we have a low coverage ratio, right? Why we are keeping the same guidance as last year, we had a 150 basis points just to bring our coverage up, right? What happened in the process by the year-end? It is a fact of three, four things which happens, like NPL formation happens, the write-off happens, and that changes your coverage ratio. How much, as Salman mentioned, it depends on how is your loan growth happen.
NPL formation, write-offs, they are three, four factors joined together. There are three, four variables which tells you how the coverage is going to be. That is the reason we are giving you a range of 61%-65%—
Okay.
—this year.
I will let someone else ask a question then.
Okay. We will take a question now from Chiro Ghosh. Please go ahead.
Yeah, very well, Chiro. How are you?
Yeah. Doing well. How are you? I can first, thanks for introducing the new management. Nice knowing them. Just two quick question. I just missed couple of points because there was some disturbance in the line. First one is, did you say that you plan to lower your loan-to-deposit ratio to close to 100%? Did you say that, Fawad?
Yeah. We are actually below 100%. We want to be compliant. We will stay close to 100% or slightly below. We are already compliant. We have moved down significantly, and that was part of the promise that we made, that we will make sure that on regulatory ratios, we are compliant. A lot of work has been done on that. And we have a projected funding plan where all the impacts and projections of every deposit and funding element and the impact on ratio is calculated, monitored, and we track it. We are going to keep our LDR sub 100, and we are going to keep it close to 100.
Yeah, it has improved from last year Q3, 117% to 104% at the year-end. Now we are at 94.5% approximately, which is as per the QCB guidelines. That is what we are saying. We will take it up to around or below 100%.
Okay. The second one is, I think I missed the point. You were saying that the Central Bank has guided, related something to the real estate construction and hospitality sector. Can you just please
I said regarding, Abdulrahman Al Thani, again, talking, I said that the Central Bank was asking Doha Bank to do the full transformation. They are allowing with us. So we proposed things to them. They approved this transformation for the whole bank. As well, the second part that I was mentioned t hat, the NPL, we will ensure that we are aligned with Central Bank. They didn't say that they will solve real estate or not real estate. It's overall, about everything. They are aware about the NPL issue and how to solve it. We are aligned with them. This is what I will mention.
Okay, perfect. You said that you are in talks with few of the corporations so that they don't default. So would we see some kind of restructuring in those loans or some extended terms to help them out?
Yeah, it's a factor of both, isn't it? That's what we are working on. That's what Sheikh mentioned, a couple of.
I'll be very honest. This part is a full assessment from remedial. If they are defaulting, so remedial should look at the case with the risk, and they put their full assessment on it. What is good for the bank, of course, we'll do. Yeah.
Okay, that's all from my side. Thank you very much.
Thanks, Chiro.
We will take the next question now from Aybek Islamov. Please go ahead. Aybek, your line is open. Please go ahead. All right, so we seem to have some issues with his mic. In the meantime, I am going to read a few questions that came on the chat. One of them is whether you have any comments on the performance of commercial office space in Qatar.
Could you repeat the question, please? If you don't mind.
Yeah. Salman, they are looking for what the commercial real estate breakdown in the book is between, offices and commercial and residential. Yeah, they also want to have a bit of clarity on what's happening on the hospitality side, and that's quite easy.
Okay.
We have been disclosing the hospitality hotels—
Okay.
—and the service sector, and they do not fall under real estate limits. With regards to the rest of the book, Fadi, if you're there.
Hello?
Yes, yes. We can hear you, sir.
Yes. In terms of the book, as Hesham, you were saying, the hospitality sector is not considered to be real estate. In terms of the real estate, we are, as I mentioned in my intro, trying to reduce the real estate exposure that we have on the book. Some of it is being restructured, some of it, we are looking at other solutions. But predominantly, we're trying to minimize growth in the real estate sector.
Thank you for that. We'll take the next question from Andy Bradenham. Please go ahead. Andy, your line is open. Can you hear me? Okay, we will try again with the question from Aybek Islamov. Aybek, can you hear me? Yes. Hi, we can hear you. Please go ahead.
Yeah. Thank you. So, a couple questions, please. Can you explain what's driving the negative revision to the NIM forecast? Is it driven by the asset yields, loan yields? What's happening with the loan pricing while you negotiate some of these loans which are in stage two or maybe even stage three? That's my first question. I think the other interesting point is that the ROE guidance looks like it's the same as before, right? 6%, 6.5%. Why is this the case? Do you expect to see some other levers in your profitability to improve? Can you explain what that could be?
Okay, let me take the first question, NIM, you're asking about. The guidance which we have given is 200 or 210 basis points. There are two, three things which is happening. If you look at the LDR ratio, which has improved significantly from Q3, 117% to 104%, now it's 94%. At the third end or during the first quarter, there were a lot of pipeline deal which was there, and we had healthy earlier ratio, that couldn't materialize. That what has happened, when that's how the NIM has it's been under pressure in the Q1. Going forward, when we give the guidance earlier for the NIM, we are expecting some federal rate cut should happen, which we see is going to be deferred.
We are sort of cognizant of the fact that, the effect of that, which is positive for Doha Bank, will come in the next year. We do not expect that benefit to come in next year. That's the guidance on the NIM. The second question on the ROE side, again, a lot of things will depend on the one major factor on the, provision on the loan side. Rest of these parameters quite stable, which is consistent sort of thing. Yes, 16.5%, where we're coming from 5% or so something in the last year, I think that's something which is achievable by the year. Again, just let me clarify one more thing, that the cost of risk which we are giving it to you is based on the number. We are not factoring any significant recovery, though it's in the pipeline.
If that recovery comes in, that will add to your profitability and maybe cost of risk may go a bit downward. You'll see.
Thank you. Can I just clarify my first question? If I look into the last two years, the policy rates increased in Qatar by almost 300-400 basis points. Whereas if I look at the lending rates or loan yields, they are up only about 200 basis points. Why is this the case?
Why the case? If you look at QMR rate going back to 2022, the spread was 150 basis points, whereas the QMR deposit rate increased and the QMR lending rate didn't increase that much. So the gap of 100 basis was stayed with you. That's one reason. Second reason is, you have seen six or seven rate hike happen. All of the rate hike could not be transferred to the entire portfolio. Theoretically, yes, should be, and practically no. That's the reason.
Okay. When you restructure your loans, are you revising your lending rates as well?
Depends. It's a case—
What's the revision?
It's all a case to case.
I think in general, if we look at your assets, I'm counting almost 60% of your assets are linked to the real estate in one way or another, through contractor exposures, through direct real estate exposures, indirect real estate exposures. I think what's the cost benefit outcome for you, right? You might get better outcome on your asset quality, prevent the big spillover of loans into NPLs, but you might be sacrificing on your lending yields. Is that the way to understand it? Is that a common solution to the commercial real estate overhang in particular?
No, when it comes to restructuring, it's not only the yield which we are negotiating, it's the tenure yield and the There are two, three factors. It's just not the one thing, basically. And it's on a case to case basis. We cannot generalize, in my opinion. Because in real estate also, there are commercial, there are r esidential. There are shops, there are hotels, there are sort of like in service sector. So it's difficult to generalize.
Okay. In addition to what my colleague, Sanjay, just mentioned, I think when it comes down to restructuring, we're very conscious of the risk-reward equation of the risk that we are taking in terms of restructuring. In terms of the tenure extensions that we are giving. While we are doing that, we're very conscious of the pricing that is there. We don't want to end up in situations where we are very thin on pricing while we are accommodating the customer to facilitate their cash flows. So Doha Bank is very cognizant of that. We are looking into each case at its merits. It's not that a general or a generic approach has been adopted that, okay, we have to do it. No. Where we see the case has merits to do so, we'll go for that. But we're not adopting at all a one-size-fits-all approach.
That's not the case at all.
Mm-hmm. Understood. Yeah. As part of the restructuring program that you presented, I believe the central bank you mentioned, is the restructuring of cost on the agenda? What are the chances we're going to see sharp cuts to your cost base, operating cost base as a result of the restructuring plan ahead of us?
No. Actually, there are two sides to this question. Costs, since we're going to also invest in new platforms, automate platforms that we have in our legacy. Also the hiring of the senior management team, that's why you see that costs are high, et cetera. In order to take out the pressure for the costs, as I said, we are taking various measures, which is actually renegotiating leases, renegotiating contracts with vendors, rationalizing our international footprint, rationalizing the number of branches, digitizing processes, which will enable us to reduce FTEs. These are things that also, reviewing structures. Of course, focusing on the cost optimization is a critical component of our strategy. But don't forget that we are also going to invest on key platforms that will take us to the next level.
That is the mandatory action we have to take in order to give Doha Bank an edge over competitors to be able to have a seamless experience in new application, mobile banking applications, super app, et cetera. Yes, we are balancing, and we're trying to reduce and mitigate costs and streamline costs. But on the other hand, there's going to be investment that has to be there in order to be able, in terms of CapEx or also OpEx, in order to be able to invest in the future. The main point and the main message is that we are focusing on cost. There will be reductions that we will see. But on the other hand, at the same time, we are spending to refresh our stack to be able to invest in new technologies.
The regulator has been approving and publicizing new regulations in terms of public cloud, in terms of impact or in terms of digital attackers, open banking, blockchain, which is actually new technologies that we need to be there and capitalize on this, that will provide us better customer service experience, and also will help us to mitigate and minimize costs. Yes, we are focusing on cost, but there will be a gradual reduction in cost. You cannot expect to see a dramatic cost reduction in the next quarter. There will be a reduction in cost, going forward, but also at the same time, don't forget we need to do these investments, which is critical for our business going forward.
Okay, thank you. In terms of revenue generation, what assets are you going to rely on, in terms of generating revenue? I presume you are origination-led revenue bank, right? Is it going to be purchases of securities, government bonds, or is it more about lending? What types of assets you think will drive your revenue growth?
You are talking about specifically from investment book perspective?
No, as a bank.
Entire asset base.
Okay. I can speak about in terms of what we are looking at from an investment book perspective, which is a 30% contribution to the overall bank's top line. We have about a QAR 9 billion portfolio equivalent, mostly HQLA. We can grow that book, with HQLA assets that does not require capital. Currently, it is generating around 50 - 60 net off cost of funding. That is a very decent chunk of revenue that we will keep on adding to it. We have increased in terms of the fee-based business, not only on the FX side, because we are now covering our clients. We put a hedging plan in place, so we are looking at the rate commodity FX across board, making sure wherever we lend balance sheet, there is a large amount of ancillary that we can capture from the client.
There is a clear drive into it, and you can see from the FX revenues this quarter, they have significantly increased, and we are on that trajectory. Then we are adding a couple of other income lines. Sheikh Abdulrahman mentioned the private bank. We are looking at the wealth management offering, and we are looking at the asset management offering. Those are scalable businesses. We are trying to increase the fee-based part, so there is less dependence on the balance sheet, and we have the ability to increase that, not only from that, but to add. There is a whole strategy around the Dubai branch now, which is getting approved, which will be the offshore booking hub for us.
That will allow us to be able to book a lot of the syndications or a lot of the unfunded trade, funded, unfunded on the trade side, the risk participation side, and also increase the offering where locally a QCB would not allow you to offer some of the derivative products, and that offering would come from offshore. That sort of component, which will drive about 30%, 40% of the revenue base.
Mm-hmm. Understood. Thank you.
We will take the next question from Esa Bohedji. Please go ahead.
Quick question on the coverage. My question is to Salman. You mentioned that you will continue provision build-up. Just want to, if you can elaborate more, what is the provision allowance short for currently when you look at not only stage 3, but also some of the accounts that you mentioned as stage two that might move to stage three? At what level that you will feel comfortable? Is that now it is 62 coverage to stage three, should go to 100, 150? If you can elaborate.
Yeah, for sure.
Thank you.
Why don't go ahead, Salman?
I can elaborate. As you just mentioned, and my colleague, Sanjay, also covered about it. Our current coverage ratio in stage three is around 62%, which is going to hover around the 65% mark. That is the anticipated coverage ratio. However, our desire is to continue building this ratio to the higher level, as and when we see the opportunity. We are not hesitant to provide more names as a strategy where such names are demonstrating signs of increased risk. We are not trying to push the matters into recovery. We are not doing that. We are being very transparent in terms of which names require provisioning at higher levels. We are providing, and we continue to do so. As far as what is a comfortable level, obviously, any level close to 100% and beyond is something that every bank desires.
Since we are going through a journey, I would not say and set a benchmark there that, okay, this percentage will make me feel very comfortable. I would say it is a journey that we are very aware of, and we have set certain internal targets as well that, okay, given this 65% benchmark, we will strive to achieve that rather exceed that. Okay? At the back of this are we planning our strategy, and we'll continue to execute that strategy in tandem with our business growth. That okay, as I mentioned earlier, we are looking at the asset quality as well. That, okay, the new assets that we are booking are not high, are not provision intensive assets in terms of their quality, in terms of the end user. It's an entire mechanism that we are looking at.
It's not just that we are looking at provision in isolation. We are looking at the entire ecosystem of our credit origination to post-credit approval management. We are able to look at it in totality, with the bank's vision. You will see that the bank is very focused.
Thank you.
[Pierre], we do not have further questions at this point, therefore we can close the call. I would like to thank the management team of Doha Bank for the presentation and all the answers provided. I hand over the call now to Mr. Hesham Kalla for any closing remarks. Thank you.
Thank you, guys. We just want to appreciate it. We do see in the Q and A a couple of questions, but our Group CEO is limited on time, and we have been with you a good amount today.
You want to participate, Hesham?
You want to have any closing remarks?
Yeah, sure. Again, look, I really appreciate this regular call. This is a very important call for us to keep you posted in terms of the impact of the transformation and the reserves that are being generated in terms of what's being implemented, but also try to give you the best forward guidance we can to manage in terms of how we see the trajectory going forward. As we said, we're really now committed and implementing a large transformation in Doha Bank. You can see some of the green shoots of that already in quarter one, and we look forward to keeping you posted with all the implementation, as in due time, you will start to see the results that are being reported in our quarterly. Thank you, everyone.
Thank you, all. Thank you.